CFPB, State Regulators, and Courts Take Aim at Convenience Fees | Hudson Cook, LLP

CFPB, State Regulators, and Courts Take Aim at Convenience Fees | Hudson Cook, LLP

August 5, 2022 0 By administrator

[co-author: Taylor Krowitz]

The first half of 2022 has seen a flurry of activity at the state and federal level attempting to reign in “convenience fees” – fees charged by a creditor, debt collector, or third party to a consumer for making a payment via some means other than a check or cash, such as over the phone, online, or in some other expedited manner. Although state and federal regulators have scrutinized convenience fees in the past, the recent overt hostility at the state and federal level creates risk for creditors, servicers, and debt collectors who might ask a customer to pay those fees.

By way of background, the federal Fair Debt Collection Practices Act (“FDCPA”) and its implementing regulation, Regulation F (“Reg F”) prohibit a debt collector from collecting any amount (including any interest, fee, charge, or expenses incidental to the principal obligation) unless the amount is expressly authorized by the agreement creating the debt or permitted by law. 15 U.S.C. § 1692f(1), 12 C.F.R. § 1006.22(b). It is uncommon for credit agreements to expressly contract for convenience fees. The service of accepting payment over the phone or through means other than a check or recurring automatic debit payment is typically considered a separate service that the creditor or debt collector does not have to provide and when providing that service costs the creditor or debt collect money, it is common to seek the consumer’s consent to pay the convenience fee and then charge the fee (or allow the third-party payment processor to impose the fee) to accept that payment. Further, most state laws do not expressly authorize (or prohibit) convenience fees. Many creditors, servicers, and debt collectors historically operated under the assumption that convenience fees are nonetheless allowed if state law did not expressly prohibit the fees, or (as noted above) because the consumer incurred the fees for a separate transaction, unrelated to the debt and not contemplated by the credit agreement (i.e., the service of providing a “convenient” or expedited means to make a payment, when a free method of payment was otherwise available). But, the recent judicial and regulatory activity this year concerning convenience fees ought to give creditors, servicers, and debt collectors pause to review applicable fee authority. We turn now to the substance of these judicial and regulatory holdings.

First, in January, the U.S. Court of Appeals for the Fourth Circuit, in Alexander v. Carrington Mortgage Services, LLC, 23 F.4th 370 (4th Cir. 2022), considered whether a mortgage servicer could charge payment convenience fees. Carrington’s standard business practice was to charge borrowers a five-dollar convenience fee whenever they paid a monthly mortgage bill online or by phone. The fee was not expressly authorized by the loan agreement that created the debt, and was not expressly permitted by Maryland law. Alexander sued, claiming that Carrington violated Maryland’s…

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