District Court (NY) Holds that Collection Letter Informing Debtor that Payments Made By Phone Would Incur $5.00 Processing Charge Violates FDCPA

In Quinteros v. MBI Associates, Inc.— F.Supp.2d —-, 2014 WL 793138 (E.D.N.Y. 2014), Judge Kuntz held that a debt collector’s letter purporting to charge a $5.00 Processing Fee for payments by phone or credit card violated the FDCPA because the charge was not set forth by the instrument creating the obligation and was incidental to the debt.

On February 22, 2012, Defendant sent Plaintiff a collection letter seeking to collect a debt allegedly incurred by Plaintiff and owed to a third-party. See Compl. at 7 (“the Collection Letter”). The letter stated, in pertinent part:  “Should you require more time to make payment or wish to make payment arrangements, please call this office upon receipt of this letter. Our office accepts Visa, MasterCard and American Express which you may pay over the phone or online at www.paymbi.com. There will be a $5.00 processing fee for all credit cards or checks over the phone.”  Id. (the “Processing Fee Statement”). The letter also had a detachable form at the bottom of the page. Id. Printed in the perforated line were the words “Detach and Return with Payment.” Id. Directly above that line, the letter stated: “There will be a service charge of $20.00 for all returned checks.” Id. The detachable form itself included information regarding Plaintiff’s outstanding debt, Defendant’s mailing address, a space where Plaintiff could indicate an “Amount Enclosed,” and an instruction to “use back of form” if Plaintiff elected to pay via credit card. Id.

The District Court found that the letter’s language regarding $5.00 Processing Fee violated the FDCPA:

15 U.S.C. § 1692f prohibits debt collectors from using “unfair or unconscionable means to collect or attempt to collect any debt.” The provision provides a non-exhaustive list of conduct that violates the FDCPA, including “[t]he collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” 15 U.S.C. § 1692f(1). Plaintiff asserts Defendant violated § 1692f(1) by imposing a transaction fee “that was not authorized by contract or permitted by law.” Compl. at ¶ 14.  The Second Circuit has expressly applied § 1692f(1) to service charges collected to defray collection costs. See Tuttle v. Equifax Check, 190 F.3d 9 (2d Cir.1999). In Tuttle, the Second Circuit explained the circumstances governing the permissibility of a service charge under the FDCPA as follows: “If state law expressly permits service charges, a service charge may be imposed even if the contract is silent on the matter;  If state law expressly prohibits service charges, a service charge cannot be imposed even if the contract allows it; If state law neither affirmatively permits nor expressly prohibits service charges, a service charge can be imposed only if the customer expressly agrees to it in the contract.”  Id. at 13 (citing 15 U.S.C. § 1692f(1) and Staff Commentary on the Fair Debt Collection Practices Act, 53 Fed.Reg. 50,097, 50,108 (Fed. Trade Comm’n 1988)) (emphasis in original). . . . Defendant’s other argument with respect to § 1692f(1) is equally unavailing. Defendant claims a credit card processing fee “is not incidental to the principal obligation” because it has nothing to do with the amount of the underlying debt or transaction out of which the debt arose, does not increase the amount of principal owed, and therefore is not a penalty or threat meant to induce payment, but is simply “the cost of doing business for the consumer who wishes to utilize the convenience and payment terms offered by charging off his debt to a credit card.” Def.’s Br. at 11–12. The FDCPA does not expressly define “incidental.” However, “the FDCPA is a remedial statute which should be liberally construed.” Harrison, 968 F.Supp. at 844. There is no legal basis for Defendant’s argument that “incidental” should be narrowly limited to “penalties or interest charges upon the principal obligation” meant to “coerce the debtor into tendering payment.” Def.’s Br. at 11. Indeed, courts in the Second Circuit have applied § 1692f(1) to processing or transaction fees similar to the one at issue here, even though those fees were not penalties or connected to the underlying debt or the amount of principal owed. See Tuttle, 190 F.3d at 11, 15 (applying FDCPA to twenty-dollar service charge imposed to defray collection costs); Shami I, 2010 WL 3824151, at *2–4 (applying FDCPA to credit card payment processing fee). Accordingly, the Court finds the processing fee at issue in this case is incidental to the principal obligation, and because Defendant has not argued the fee was authorized either by agreement or law, Plaintiff has stated a claim under 15 U.S.C. § 1692f(1).