The Consumer Finance Protection Bureau ("CFPB") issued an advisory opinion warning debt collectors that they may be collecting illegal fees from consumer-borrowers. Specifically, the Bureau has interpreted Section 808(1) of the Fair Debt Collections Practices Act ("FDCPA") as prohibiting "pay-to-pay fees" unless either the underlying contract creating the debt or an applicable law affirmatively authorizes the fees. In the announcement, CFPB Director Rohit Chopra said, "Federal law generally forbids debt collectors from imposing extra fees not authorized by the original loan."
What Fees are Impacted?
The advisory opinion specifically targets so-called "pay-to-pay fees," also known as convenience fees, that debt collectors might directly charge consumers for accepting a payment over the telephone, through an online service, or through another specified payment channel.
In addition, the Bureau specifically flags that when a third-party payment processor charges consumers pay-to-pay fees and remits any amount that can be connected to those fees, the debt collector is at risk of having illegally collected fees from consumers under the rationale set forth in the Bureau's advisory opinion.
Background: Section 808(1) of the Fair Debt Collection Practices Act
Section 808(1) of the FDCPA 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." 15 U.S.C. § 1692f(1) (emphasis added). This prohibition against collecting certain "amounts" is generally mirrored in the CFPB regulations for implementing the FDCPA, Regulation F, at 12 C.F.R. § 1006.22(b).
The exact scope of what "amounts" debt collectors are prohibited from collecting under Section 808(1) of the FDCPA has been subject to some debate through the years. Some courts have found that debt collectors' pay-to-pay fees are not "incidental to the principal obligation," and therefore are permissible. Additionally, some courts have found that general contract law authorizes the collection of pay-to-pay fees where a separate agreement exists between the debt collector and consumer. The CFPB, however, disagrees with both interpretations.
The CFPB instead takes the hardline stance that Section 808(1) should be interpreted broadly and with little room for ambiguity. The CFPB expressly rejected the notion that pay-to-pay fees are not "incidental to the principal obligation" by explaining that the phrase "any amount" essentially creates a blanket prohibition on debt collectors collecting fees without some affirmative authorization to do so found in either the underlying loan contract or another area of law. Similarly, the CFPB rejected the idea that where a separate agreement exists between the debt collector and consumer, general contract law principals alone can provide sufficient authorization for debt collectors to collect pay-to-pay fees under Section 808(1).
Instead, for a debt collector to legally charge a fee for accepting a payment through a particular payment channel, a debt collector must be able to point to an affirmative authorization to collect such a fee in either (a) the underlying loan contract or (b) another area of law. If nothing can be found in the underlying loan contract, laws are silent on the issue, or laws only passively allow such fees to be charged, the debt collector will not have sufficient authorization to permissibly charge the fees, thus violating the FDCPA and Regulation F.
According to the Bureau, its position on the requirements of Section 808(1) is supported by past agency and court interpretations. Specifically, the CFPB noted that a 2017 CFPB Compliance Bulletin regarding the legality of phone pay fees interpreted the phrase "permitted by law" as requiring express authorization by contract or state law. The Bureau also cited several cases where courts have interpreted Section 801(1) similarly. Finally, Bureau noted that the FTC reached a similar conclusion on Section 808(1)'s requirements in an 1988 FTC Commentary, in which the FTC stated that, if the underlying contract is silent on the matter, a debt collector may only collect additional fees and charges that are expressly permitted by state law under the FDCPA.
The advisory opinion is issued under the CFPB's authority to interpret the FDCPA under the Consumer Financial Protection Act. The CFPB considers the advisory opinion an interpretive rule exempt from notice-and comment rulemaking requirements of the Administrative Procedures Act.
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