Digit fined $2.7M in overdraft enforcement action

Digit, an automated savings app bought last year by Oportun, was fined $2.7 million Wednesday by the Consumer Financial Protection Bureau (CFPB) for causing users to incur overdraft fees.

Why it matters: The enforcement action highlights the risk that fintechs run by promising to automate consumers’ bills, payments or savings accounts. The action comes less than a year after the company’s acquisition.

How it works: Digit uses a proprietary algorithm to analyze users’ checking-account data and determine how much it can save for each consumer, automatically deducting small sums from their accounts and storing them in a “Rainy Day Fund.”

Yes, but: According to the CFPB, the algorithm didn’t work as advertised and routinely caused consumers’ checking accounts to incur overdraft fees.

• Digit received nearly 70,000 overdraft reimbursement requests since 2017 and declined more than 7,200 of those requests, the CFPB said.

The intrigue: Digit was acquired by Oportun, a publicly traded small-dollar lender, last December.

• But Oportun has had its own separate run-in with federal and state regulators: It was investigated last year for collection practices against borrowers who couldn’t repay loans during the Covid-19 pandemic.
• As a result, Oportun withdrew its application for a bank charter last fall.

What they’re saying: In a statement sent to Axios, an Oportun spokesperson said Digit first received an inquiry from the CFPB in June 2020, and the company was aware of it during the acquisition process.

• “Through the investigation, it was found that with a success rate of better than 99.99%, Digit isn’t ‘perfect,’ meaning a Digit Save transaction caused an overdraft fee for one of our members less than 0.008% of the time,” the spokesperson wrote.

• “As a result, Digit owes 1,947 members approximately $35 each, for a total of $68,145. In addition, Digit will pay a civil money penalty of $2.7 million. While we disagree with the CFPB on this matter, we are happy to have it settled.”

Of note: Oportun shares have fallen more than 60% since the Digit acquisition closed and are off more than 3% in Wednesday morning trading.

Ryan Lawler co-authors the Axios Pro Fintech deals newsletter. Start your free trial at AxiosPro.com.