The Consumer Financial Protection Bureau (CFPB) issued a $2.7 million fine against fintech company Hello Digit, LLC for using a “faulty algorithm” which allegedly caused overdrafts and overdraft penalties for customers.
“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 said in its press release.
California-based Hello Digital was acquired by Opportun Financial Corp. in Dec. 2021. 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 tool is meant to help people put aside money.
As part of the sign-up process, Hello Digit required consumers to grant it 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.
“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,” CFPB Director Rohit Chopra said. “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.”
The CFPB found that Hello Digit engaged in deceptive acts or practices, violating the Consumer Financial Protection Act. Specifically, the CFPB found that 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.” Instead, Hello Digit routinely caused consumers’ checking accounts to incur overdraft fees charged by their banks. Hello Digit received complaints about overdrafts daily.
- Broke promises to make whole on its mistakes. 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.