September 30, 2022

Volume XII, Number 273

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CFPB Targets FinTech for Faulty Automated Savings Algorithm

On August 10, the CFPB issued a consent order against a FinTech company for a faulty algorithm utilized in its personal finance management app that caused consumer accounts to overdraft 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:

  • Falsely claiming a “no overdraft guarantee” – although the FinTech represented that it “never transfers more than you can afford” and claimed to offer “no overdraft guarantee,” it routinely caused consumers to incur overdraft fees charged by their banks.

  • Failing to reimburse overdraft fees – the FinTech claimed that it would reimburse consumers if there was an overdraft, but often denied consumer requests for reimbursement.

  • Keeping interest earned – despite claiming that it would not keep any interest earned on consumer funds it was holding, the FinTech kept the interest earned.

The CFPB’s consent order enjoins the FinTech company from making any further misrepresentations related to its “auto-save” algorithm, requires the company to pay at least $68,145 in consumer redress for rejecting reimbursement requests for overdraft fees incurred, and payment of $2.7 million in civil penalties.

Putting It Into Practice: This recent enforcement action demonstrates 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. Consistent with this consent order, FinTechs should ensure that its’ algorithms do not function in a manner that runs afoul of 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 one of the CFPB’s current policy pushes: reining in overdraft fees.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 230
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About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm
Partner

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

213-617-4171
A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC
Associate

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

202-747-2323
Associate

Pouneh Almasi is an associate in the Intellectual Property Practice Group in the firm's San Francisco office.  

Areas of Practice

Pouneh’s practice focuses on intellectual property litigation with an emphasis on copyright and trademark issues.  She is also a member of the firm’s Blockchain Technology & Digital Currency Team.

During law school, Pouneh worked as a judicial extern to the Honorable Jacqueline Scott Corley at the Northern District of California in San Francisco...

415-774-3103
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