WASHINGTON– The Consumer Financial Protection Bureau said it has taken action against Hello Digit, a fintech that is alleged to have used a faulty algorithm that caused overdrafts and overdraft penalties for customers.
In announcing its action, the Bureau said Hello Digit was meant to save people money, “but instead the company falsely guaranteed no overdrafts with its product, broke its promises to make amends on its mistakes, and pocketed a portion of the interest that should have gone to consumers.”
The CFPB has issued an order that requires Hello Digit to pay redress to its harmed customers and further fines the company $2.7 million for its actions.
San Francisco-based Hello Digit was acquired in late 2021 by Oportun Financial Corp., a small-dollar lending company. According to the CFPB, the company offers a personal-finance-management app that promotes automated savings.
Nothing for Rainy Day
“When consumers sign up for the service, Hello Digit uses a proprietary algorithm to make automatic transfers from the consumer’s checking account, called ‘auto-saves,’ to an account held in Hello Digit’s name for the benefit of the consumers,” the CFPB said. “The tool is meant to help people put aside money for vacations or rainy days. As part of the sign-up process, consumers are required to grant Hello Digit access to their checking accounts. Hello Digit then uses its algorithm to analyze consumers’ checking-account data to determine when and how much to save for each consumer.”
The company charges consumers a subscription fee of $5 a month for its service, the CFPB said.
The CFPB said it found Hello Digit engaged in deceptive acts or practices, violating the Consumer Financial Protection Act.
Specifically, the CFPB said it found the company:
Falsely guaranteed no overdrafts: Hello Digit represented that its tool “never transfers more than you can afford,” and it provided a “no overdraft guarantee.” But instead, Hello Digit routinely caused consumers’ checking accounts to incur overdraft fees charged by their banks. Hello Digit received complaints about overdrafts daily, according to the Bureau.
Broke promises to make whole on its mistakes: The CFPB said the company also represented that if there was an overdraft, it would reimburse consumers. But the company often denied customers who tried to recoup their money. The company has received nearly 70,000 overdraft-reimbursement requests since 2017.
Pocketed interest that should have gone to consumers: As of mid-2017, Hello Digit deceived consumers when it represented that it would not keep any interest earned on consumer funds that it was holding, when in fact the company kept a significant amount of the interest earned. Had Hello Digit kept its promise to not keep the interest on consumers’ funds, consumers could have pocketed the extra savings, according to the CFPB.
Enforcement Action
The CFPB said its order requires Hello Digit to:
Provide redress to consumers: Hello Digit must pay reimbursement requests for overdraft charges that it previously denied.
Pay a $2.7 million fine: Hello Digit must pay a $2.7 million dollar penalty to the CFPB, which will be deposited into the CFPB’s victims relief fund.
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