August 15, 2022

Volume XII, Number 227

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August 12, 2022

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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.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 195
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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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