Claims that a faulty algorithm has caused overdrafts and overdraft penalties for customers has led to an action – including a $2.7 million fine – by the federal consumer financial protection agency against a San Francisco-based fintech firm, the agency said Wednesday.
The action against the firm Hello Digit, LLC, also requires redress to be paid to its customers, the Consumer Financial Protection Bureau (CFPB) said.
According to the bureau, 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 bureau said. The tool is meant, the agency added, to help people put aside money for vacations or rainy days.
Consumers are required to grant Hello Digit access to their checking accounts when they sign up for the service, CFPB said. Hello Digit then uses its algorithm to analyze consumers’ checking-account data to determine when and how much to save for each consumer, the agency said, charging consumers a subscription fee of $5 a month for its service.
The bureau said it found that Hello Digit engaged in deceptive acts or practices, violating the Consumer Financial Protection Act (CFPA). The agency said the violations by the company include that it falsely guaranteed no overdrafts, broke promises to make whole on its mistakes, and pocketed interest that should have gone to consumers