Yesterday the Consumer Financial Protection Bureau (CFPB) issued a warning to companies that they are watching for instances of "tricking" consumers into paying excessive fees for the ability to pay by phone. The Bulletin begins:
“Compliance Bulletin to covered persons and service providers regarding fee assessments for pay-by-phone services (phone pay fees) and the potential for violations of sections 1031 and 1036 of the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (Dodd-Frank Act) prohibition on engaging in unfair, deceptive, or abusive acts or practices (collectively, UDAAPs) when assessing phone pay fees.”
A copy of the Compliance Bulletin can be found here.
The headline of the press release that announced the bulletin read:
CONSUMER FINANCIAL PROTECTION BUREAU WARNS COMPANIES AGAINST TRICKING CONSUMERS INTO EXPENSIVE PAY-BY-PHONE FEES
Per the press release:
“The CFPB today issued a bulletin warning companies about tricking consumers into expensive pay-by-phone fees. The Bureau is concerned about companies potentially misleading consumers about the purpose and amount of certain pay-by-phone fees or keeping them in the dark about much cheaper payment options. The bulletin also reviews guidelines to help consumer financial companies comply with the law.
“The Bureau is warning companies about tricking consumers into more expensive fees when they pay bills by phone,” said CFPB Director Richard Cordray. “We are concerned that companies are misleading consumers about pay-by-phone fees or keeping them in the dark about much cheaper or no-cost payment options.”
Most financial service companies give consumers several options to make payments. Some consumers may choose to pay bills by phone using an automated system or speaking with a live customer representative. Companies may charge different pay-by-phone fees depending on what method of payment the consumer uses, such as payment by electronic check, debit card, or credit card. Consumers may also be charged an additional fee to expedite phone payments, though many companies offer consumers no-fee or lower-fee pay-by-phone options that post after a delay. In its supervision and enforcement activities, the Bureau identified harmful practices regarding pay-by-phone fees such as:
- Misleading consumers about pay-by-phone fees: The Bureau is concerned about companies misrepresenting the purpose and amount of pay-by-phone fees, which can result in consumers incurring charges for services they don’t need. For example, a recent Bureau enforcement action alleged that a company and its service provider misled consumers into paying a $14.95 pay-by-phone fee by deceptively calling it a “processing” charge. The fee was actually for posting payment to the account the same day. Consumers paying by phone ended up being charged for expedited payment even though most of them did not need to post payment on the same day. Moreover, many were not aware of no-cost payment alternatives that would post after a delay.
- Keeping consumers in the dark about much cheaper payment options: Some companies do not disclose their fees in writing upfront to consumers. Instead, they may depend solely on phone representatives to disclose the relevant fees to consumers before the charge is imposed. These representatives may then fail to inform consumers about significant price differences between available pay-by-phone options. This may substantially harm consumers who wind up using much more expensive options because they are not informed that significantly cheaper options are available.
The CFPB has made an issue of “Phone pay fees” or so called “convenience fees” since they were identified in the very first supervisory and/or enforcement investigations. Many companies have either voluntarily abandoned such fees completely, or have been prohibited by clients from charging such fees on any of their accounts.
In 2016, the Compliance Professionals Forum conducted a survey of its members, asking what the convenience fee practices were for their companies. The full report is available only to members of CPF; however, some anecdotal information from that report is useful in this context.
Of the 240+ members surveyed, only 21 percent worked for an agency that charged a convenience fee to consumers. The primary reasons offered:
- The payment vendor they used charged a fee
- The fee charged by the credit card company was too high for the agency to absorb and remain profitable
For the 79 percent who did not, the main apprehension was around confusing state laws, with most also saying their company just didn’t have the appetite for that kind of compliance risk.
So, what exactly does this Compliance Bulletin tell the ARM industry? The CFPB press release notes: “The CFPB does not mandate any particular way to inform consumers about pay-by-phone options and fees (Emphasis added by insideARM). However, the Bureau expects companies to review their practices for risks of violating consumer protection laws and to address any potential issues.
To this writer, the key takeaway is from the press release headline. The phrase “Tricking consumers into expensive pay-by-phone fees” is what is important.
Some guidance that can be gleaned from the bulletin:
- ARM companies still utilizing pay-by-phone or convenience fees should have policies and procedures in place to disclose to consumers the prices of all available phone pay fees when different options carry materially different fees.
- Review call scripts and employee training manuals on phone pay procedures.
- Train and monitor staff to limit the potential that an agent may misrepresent the available payment options or that a fee is required to pay by phone.
- Ensure disclosures to consumers that a phone pay fee will be charged.
- Incorporate pay-by-phone issues in call monitoring or audits.
- Review your consumer complaints to identify whether there is evidence of a problem related to phone pay fees.