When the CFPB released their advisory opinion on “pay-to-pay fees” in debt collection, it caused confusion in the debt collection industry. The opinion emphasized the existing provision in the FDCPA that says debt collectors may not collect fees that are “incidental” to the principal amount of the debt unless expressly permitted by law or within the consumer’s agreement with the creditor.
But, that has been the governing law in debt collection since the FCPA was passed in 1977. So why even bother with publishing the advisory opinion? Digging deeper into the opinion, there are a few key points of clarification:
- “Incidental” is irrelevant. While the original statute prohibits any interest, fee, charge, or expense that is incidental to the principal obligation of the consumer, the CFPB interprets the prohibition to apply to “any amount,” even if such amount is not “incidental to” the principal.
- The opinion clarifies what “expressly permitted” means. There is a connotative difference, according to the CFPB, between “permit” and “allow.” In this case, the opinion of the CFPB is that “permit” requires an affirmative sanction or approval. To date, there are no states which have statutes that expressly permit the collection of convenience fees from consumers in relation to debt collection. Therefore, debt collectors cannot rely on the lack of guidance on the subject to collect a convenience fee.
These points leave debt collectors with only one protection outlined in the FDCPA: if the consumer agrees to the collection of convenience fees related to debt collection in their initial agreement with the creditor, the fees are permissible. Currently, most agreements do not require consumers to consent to convenience fees. It’s possible we’re seeing a trend to start including these terms in credit agreements, similar to the way consent to texting and automated calls has made its way into agreements post-TCPA.
Perhaps the most critical part of the CFPB’s recent opinion is: regardless of who collects the fee, if the money ends up with the debt collector, they are violating the FDCPA. One of the ways debt collectors have circumvented the FDCPA is by allowing the payment processors to collect the fee. But, the CFPB emphasized in their most recent opinion that if the debt collector ends up with funds related to convenience fees in their bank account, it’s a violation of the FDCPA.
The cost of payment processing can be extremely expensive for debt collectors, especially as more consumers elect to pay online or using credit cards. In the wake of this recent opinion, is it still possible to offset those costs?
Generally speaking, if the payment processor charges a separate transaction, provides the right disclosures, and does not remit any part of those fees to the debt collector, it’s still permissible to offset the costs of payment processing by charging the consumer a fee. The bottom line is the convenience fee cannot be a revenue generator for the debt collector. Of course, as with anything in the debt collection industry, there are nuances to this rule. Rules vary by state and creditor-client, so the best way for debt collectors to ensure compliance with the law while offsetting the cost of payment processing is to find a payment processor who has done their due diligence and is able to provide guidance on the subject.
To learn more about the CFPB’s recent advisory opinion and how to stay compliant with the law, watch our one-hour webinar: Breaking Down the CFPB's Opinion on Convenience Fees, featuring experts Rick Perr (Co-Managing Partner, Philadelphia, Kaufman Dolowich & Voluck LLP) and Rob Kennedy (Vice President of Sales, North America, Nuvei).