Additional reporting by Terri Haley, Director of Compliance, The Compliance Professionals Forum
Yesterday, North Carolina Insurance Commissioner Wayne Goodwin announced that a settlement had been reached with three collection agencies regarding the charging of convenience fees. The agencies have agreed to pay penalties totaling $493,670 to resolve allegations that the collection agencies committed unfair practices in violation of N.C.G.S. § 58-70-115(2) by collecting convenience fees from consumers.
N.C.G.S. § 58-70-115 governs “Unfair practices” by a collection agency. The section referenced above states the following:
No collection agency shall collect or attempt to collect any debt by use of any unfair practices. Such practices include, but are not limited to, the following:
(2) Collecting or attempting to collect from the consumer all or any part of the collection agency’s fee or charge for services rendered, collecting or attempting to collect any interest or other charge, fee or expense incidental to the principal debt unless legally entitled to such fee or charge.
The three agencies involved are: EGS Financial Care, Inc. (EGS) (formerly NCO Financial Systems, Inc.); Systems & Services Technologies, Inc. (SST); and Transworld Systems, Inc. (Transworld). All three companies were, at one time, part of NCO Financial Systems. (Note: In July of 2014 EGS announced that it was divesting the third party collection business and selling Transworld Systems to a private equity group. Per the company website, SST remains an EGS company.)
The North Carolina Department of Insurance began investigating the collection agencies after it received a complaint from a consumer indicating that on three occasions Transworld Systems, Inc. drafted $12.00 from her bank account in addition to the $50.00 monthly bill payment. The department discovered that the collection agencies charged a flat convenience fee for each payment processed over the telephone and online through their computer collection systems.
The companies did not acknowledge any wrongdoing and denied that they had violated N.C.G.S. § 58-70-1 et seq. However, rather than face an administrative hearing, the collection agencies agreed to pay civil penalties and to (1) permanently cease and desist collecting convenience fees or any other fees from North Carolina consumers; and (2) promptly and fully reimburse all convenience fees which the collection agencies collected from any North Carolina consumer from Aug. 1, 2010, through March 31, 2014, upon receipt of a written request from the consumer.
The charging of convenience fees has become a huge challenge for the ARM industry. While North Carolina had a specific statute on the issue, most states’ collection statutes do not address the issue. Additionally, while not per se prohibited under the FDCPA, the practice has come under serious scrutiny.
If not expressly prohibited by a particular state statute or rule, the practice can still be deemed an Unfair, Deceptive, or Abusive Act or Practice (UDAAP).
There is considerable debate within the ARM industry regarding convenience fees. The practice has changed significantly in the last five years. Some firms have stopped charging convenience fees altogether. Some have retained the practice, but have dramatically altered the procedures. For instance, the consumer is given notice of how methods to make a payment that does not involve a convenience fee. Additionally where allowed, some agencies tie the convenience fee to actual costs. While these procedural changes have logic and merit, there is still some risk that the charging of any convenience fee is problematic.
The CFPB and the FTC have repeatedly censured companies and levied fines against the industry for the assessment of these fees using several different statutes. This has run counter to some agencies out there, who have used these fees, in some cases, as a revenue stream – leading to additional scrutiny from regulators.
There is considerable debate within the ARM industry regarding convenience fees. Both insideARM and The Compliance Professionals Forum strongly suggest the discontinuation of these fees. We believe the regulators have made clear their feelings about these fees, and the writing is on the wall for probable changes in the laws.
At minimum we recommend each company should consider the following: (1) a consumer should be advised of free payment options in every communication (2) contracts should be reviewed to ensure that any fees are permitted (3) state laws where the consumer resides and where the debt was incurred, should be reviewed to determine any restrictions or prohibitions.