CFPB Issues Advisory Opinion on “Pay-to-Pay” or “Convenience Fees”

On June 29, 2022, the CFPB issued an Advisory Opinion on collection of “convenience fees”.  https://www.consumerfinance.gov/about-us/newsroom/cfpb-moves-to-reduce-junk-fees-charged-by-debt-collectors/  A copy of the Advisory Opinion can be found here.

Severson has been following the CFPB’s evolving position(s) and regulation of “convenience fees”.   CFPB-2017-S&WConvenience-Fees-Bulletin; 2018-AmericanBarAssociation-Article-on-Convnience-Fees

Referring to its 2017 Compliance Bulletin, the CFPB stated:

For example, in 2017, the CFPB issued a compliance bulletin (Bulletin) that “provides guidance to debt collectors about compliance with the [FDCPA] when assessing phone pay fees,” a type of pay-to-pay fee. The Bulletin summarizes CFPB staff’s conclusion that, under section 808(1), debt collectors may collect such pay-to-pay fees only if the underlying contract or state law expressly authorizes those fees.  In particular, the Bulletin states that in at least one supervisory exam, CFPB examiners found that a debt collector “violated [section 808(1)] when they charged fees for taking mortgage payments over the phone” where the underlying contracts creating the debt did not expressly authorize collecting such fees and where the relevant State law did not “expressly permit collecting such fees.”

The CFPB has now rejected the argument that “incidental” charges are excluded from the analysis.

Accordingly, the CFPB clarifies that FDCPA section 808(1) and Regulation F, 12 CFR 1006.22(b), apply to any amount collected by a debt collector in connection with the collection of a debt, including, but not limited to, any interest, fee, charge, or expense that is incidental to the principal obligation. Consistent with this interpretation, the CFPB further clarifies that pay-to-pay fees charged to consumers for accepting a consumer’s payment on a debt through a particular payment channel are an “amount” within the meaning of FDCPA section 808(1) and Regulation F, 12 CFR 1006.22(b). The CFPB acknowledges that some courts have held otherwise, finding that pay-to-pay fees do not violate FDCPA section 808(1) because such fees are not “incidental to the principal obligation.” But, as explained, the CFPB interprets section 808(1) to apply to “any amount,” even if such amount is not “incidental to” the principal obligation.

In short, “convenience fees” must be expressly authorized by the agreement creating the debt or be permitted by law.  This means, according to the CFPB that either the contract or the law must specifically speak to the propriety of the convenience fee, and a separate agreement authorizing the charge will not cut it.

The word “permit” is susceptible to multiple meanings, but it tends to refer to “affirmative authorization,” and the CFPB reads section 808(1) to use the word in that sense. . .Under the CFPB’s interpretation, an amount is impermissible if both the agreement creating the debt and other law are silent. For example, under the CFPB’s interpretation, amounts, including pay-to-pay fees, that are neither expressly authorized by the agreement creating the debt nor expressly authorized by law are impermissible under FDCPA section 808(1) and Regulation F, 12 CFR 1006.22(b), even if such amounts are the subject of a separate, valid agreement under State contract law. Although some courts have adopted this “separate agreement” interpretation to permit debt collectors to collect, for example, certain pay-to-pay fees, the CFPB declines to do so. Such a reading would render the part of section 808(1) that refers to amounts “expressly authorized by the agreement creating the debt” superfluous because a lawful agreement creating the debt is, by definition, an agreement valid under State contract law. In addition, the separate agreement interpretation ignores section 808(1)’s focus on the “amount” being “expressly authorized by the agreement creating the debt” or “permitted by law.” 28 Under section 808(1), it is not enough for the agreement to be “permitted by law”; rather, the “amount” itself must be. Contract law standing alone does not provide for the collection of any specific amounts—and no principle of contract law says debt collectors may collect pay-to-pay fees.  Thus, while it may have been permissible under contract law for a debt collector to enter into separate agreements with consumers, contract law does not permit the “amount” at issue, i.e., the pay-to-pay fees.

Finally, the CFPB noted that outsourcing to third-party payment processors who charge and remit the fee will not immunize the practice.

Debt collectors may violate FDCPA section 808(1) and Regulation F, 12 CFR 1006.22(b), when using payment processors who charge consumers pay-to-pay fees. For instance, a debt collector collects an amount under section 808(1) at a minimum when a third party payment processor collects a pay-to-pay fee from a consumer and remits to the debt collector any amount in connection with that fee, whether in installments or in a lump sum.