CFPB Takes Action Against Hello Digit for Lying to Consumers About Its Automated Savings Algorithm
August 10, 2022 / Source: CFPB
Fintech’s Algorithm Wrongfully Depleted Checking Accounts, Leading to Overdraft Penalties for Customers
WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) is taking action against Hello Digit, LLC, a financial technology company that used a faulty algorithm that 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. Today’s order requires Hello Digit to pay redress to its harmed customers. It also fines the company $2.7 million for its actions.
“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. “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.”
Hello Digit is a fintech company with its principal place of business in San Francisco, California. In December 2021, Hello Digit was acquired by Oportun Financial Corporation, a small-dollar lending company. Hello Digit offers a personal-finance-management app that promotes automated savings. 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 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 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.” But 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.
Under the Consumer Financial Protection Act, the CFPB has the authority to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices. In addition to ceasing all illegal activity, the CFPB’s 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.
Consumers can submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372). Employees of companies who they believe their company has violated federal consumer financial laws are encouraged to send information about what they know to [email protected].