CFPB Fines Fintech $3M for Using Faulty Savings Algorithm That Led to Customers Being Overdrawn

The Consumer Financial Protection Bureau yesterday announced that a fintech company that promoted itself as a savings tool for consumers engaged in deceptive acts and practices by using a faulty algorithm that actually ended up causing its customers to “routinely” incur overdraft fees, and announced that the company will pay $2.7 million in fines as well as having to reimburse customers for the overdraft fees that they paid.

A copy of the consent order with Hello Digit can be accessed by clicking here.

The company, which was acquired last year by Opportun, sold its services through a personal finance app. The company used an algorithm to automatically withdraw money from its customers’ bank accounts and put it in a separate account, which could be used as emergency savings or for specific objectives, like saving for a vacation or paying off debts. The company said that the algorithm would never withdraw more than a consumer can afford and provided a “no overdraft” guarantee. But the algorithm “routinely” caused its customers to incur overdraft fees and the company received complaints daily from consumers. As part of its guarantee, the company promised to reimburse customers if they ever incurred an overdraft fee as a result of a withdrawal made by the algorithm, but the company denied about 10% of the 70,000 reimbursement requests it has received since 2017. The company also allegedly went back on its word when it said it would not keep any of the interest that accrued on funds that it was holding for its customers, a representation it made when it started charging consumers a monthly subscription fee to use the service.

“Hello Digit positioned itself as a savings tool for consumers having trouble saving on their own. But instead, consumers ended up paying unnecessary overdraft fees,” said Rohit Chopra, director of the CFPB, in a statement. “Companies have long been held to account when they engage in faulty advertising, and regulators must do the same when it comes to faulty algorithms.”

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