“Convenience” fees charged to consumers for the use of certain debt payment options have come under increased scrutiny, as regulators have sought to limit charges and other back-end fees that may come as a surprise to consumers. Also known as “pay-to-pay” fees, such convenience charges are typically imposed by debt collectors and/or loan servicers where a debtor chooses to make payment online, by telephone, or through another electronic medium. On June 29, the Consumer Financial Protection Bureau (CFPB or Bureau) issued an advisory opinion concerning the permissibility of these fees under the federal Fair Debt Collection Practices Act (FDCPA). The opinion, which became effective on July 5, sets forth the Bureau’s view that such fees are prohibited under the FDCPA, except where expressly authorized by the agreement creating the debt or expressly authorized by law.
The Bureau’s opinion rests upon a two-part analysis, focusing on the “any amount” and “permitted by law” language found in FDCPA Section 1692f(1), which prohibits the “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.” The analogous regulation, promulgated by the Bureau in 2020, tracks this statutory language, while clarifying that the “term ‘any amount’ includes any interest, fee, charge, or expense incidental to the principal obligation.” 12 C.F.R. § 1006.22(b).
In a 2017 compliance bulletin, the Bureau issued guidance to debt collectors, summarizing its conclusion that “any amount” includes phone pay fees — a species of pay-to-pay fee — and that such fees were permissible only where the underlying contract or state law expressly authorized them. The June 29 advisory opinion extends that reasoning to include “fees incurred by customers to make debt collection payments through a particular channel,” whether or not such fees are “incidental to” the principal debt obligation.
“Permitted by law”
The second prong of the Bureau’s analysis focuses on Section 1692f(1)’s “permitted by law” language. In the Bureau’s view, Congress’s use of the term “permit” within the context of law suggests affirmative authorization — not a mere lack of prohibition. Accordingly, going forward the Bureau will interpret Section 1692f(1) “to permit collection of an amount only if: (1) the agreement creating the debt expressly permits the charge and some law does not prohibit it; or (2) some law expressly permits the charge, even if the agreement creating the debt is silent.” If both the agreement creating the debt and other state law are silent with respect to pay-to-pay fees, such fees are impermissible. Importantly, the opinion further clarifies that a separate contract between a consumer and debt collector providing for payment fees — and binding under state law — would not suffice to bring the fees within the ambit of the “permitted by law” exception. The Bureau reasoned that while such agreements may be permissible under a given jurisdiction’s contract law, such laws do not expressly “permit the ‘amount’ at issue, i.e., the pay-to-pay fees.”
The Bureau’s advisory opinion also reaches debt collectors and/or loan servicers who use third-party payment processors that charge consumers pay-to-pay fees. Under this scenario, a debt collector could incur liability under Section 1692f(1) where 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.”
Overall, the June 29 advisory opinion keeps with CFPB Director Rohit Chopra’s efforts to rein in fee practices across the financial services industry. As conceded by the Bureau, however, its interpretation of Section 1692f(1) runs contrary to prior judicial opinions construing the statutory text — particularly those decisions validating pay-to-pay fees governed by subsequent loan-servicing contracts otherwise valid under state law. Because debt collectors and loan servicers do not originate the terms and conditions agreements underlying consumer debts, their ability to impose pay-to-pay fees would be significantly curtailed under the Bureau’s no-separate-agreement rule. As noted in the advisory opinion, this very issue is the subject of an appeal currently pending in the Ninth Circuit. See Thomas-Lawson v. Carrington Mortg. Servs., LLC, No. 2:20-cv-07301-ODW, 2021 WL 1253578 (C.D. Cal. Apr. 5, 2021), appeal pending, No. 21-55459 (9th Cir.). The Bureau has filed an amicus brief in the case in support of the debtor-appellants. Troutman Pepper’s Consumer Financial Services Practice Group will continue to monitor the appeal. Stay tuned.