On August 10, the CFPB issued a consent order against a FinTech company for a flawed algorithm used in its personal financial management app that caused consumer accounts to be overdrawn and incur overdraft penalties. According to the CFPB, although the San Francisco-based fintech company promoted the app as a savings tool for consumers, it engaged in deceptive acts or practices in violation of the CFPA by:
- False claim of a “no overdraft guarantee” – although FinTech represented that it “never transfers more than you can afford” and claimed to offer “no overdraft guarantee”, it routinely left consumers incurring overdraft fees charged by their banks.
- Failure to refund overdraft fees – FinTechs claimed they would refund consumers if there were overdrafts, but often refused consumers’ requests for refunds.
- Keep earned interest – despite claiming that they would not keep any interest earned on the consumer funds they held, FinTech kept the interest earned.
The CFPB’s consent order orders the FinTech company to make additional misrepresentations related to its “auto-storage” algorithm, requires the company to pay at least $68,145 in consumer restitution to deny refund requests for accrued overdraft fees, and pay $2.7 million in civil penalties.
Putting it into practice: This recent enforcement action shows that FinTechs are a focal point for allegations of consumer protection violations through their use of algorithms to determine consumer outcomes, including outside of the fair lending context. Pursuant to this consent order, FinTechs should ensure that their algorithms do not operate in a way that violates consumer protection laws – for example, by producing results that contradict the companies’ guarantees and promises to consumers. Similarly, companies should note that this latest action also highlights another of the CFPB’s current policy pushes: reining in overdraft fees.
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