CFPB Advisory Opinion: Pay-to-Pay, “Convenience” Fees Prohibited by FDCPA
On June 29, the CFPB issued an advisory opinion affirming that the Fair Debt Collection Practices Act (FDCPA) and Regulation F prohibit debt collectors from collecting pay-to-pay or “convenience fees” imposed for making a payment in a particular way, such as by phone or online, when such fees are not expressly authorized by the underlying agreement or otherwise permitted by law. In interpreting FDCPA Section 808, the Bureau’s advisory opinion explains that:
Scope of fees: Section 808(1) permits collection of an amount only if the underlying agreement creating the debt expressly permits the fee and is not otherwise prohibited by another law, or if the amount is expressly permitted by law, even if the underlying agreement creating the debt is silent on this point.
Silence in the law: If both the underlying agreement creating the debt and other laws are silent, the fee is prohibited, even if such amounts are covered under a separate, valid agreement under state contract law. The Bureau further clarifies that even though some courts have interpreted the FDCPA to allow collection of fees under this “separate agreement” theory, the CFPB declines to follow such interpretation.
Payment processors: Debt collectors can violate Section 808 if the payment processor charges unlawful pay-to-pay fees by, for example, charging convenience fees to pay by phone.
While most debt collectors do not charge such illegal pay-to-pay fees, the CFPB reports that some debt collectors do, even if it is cheaper and faster for them to process payments by phone or online than by paper checks delivered via mail or in person.
Putting It Into Practice: The CFPB and other U.S. regulators have recently shown greater focus and scrutiny on illegal junk fees, including pay-to-pay fees, across multiple consumer finance industries. (See our previous blog posts here and here.) As a matter of best practices, before charging additional fees for certain payment methods, debt collectors and payment processors should have business processes in place to ensure such fees are authorized by the underlying agreement or otherwise permitted by another law.