The Consumer Finance Protection Bureau (“CFPB”) has issued an advisory warning debt collectors that they may be collecting illegal fees from consumer-borrowers. Specifically, the Bureau interpreted Section 808(1) of the Fair Debt Collections Practices Act (“FDCPA”) to prohibit “payment charges” unless the underlying contract creating the debt or an applicable law n expressly authorizes the charges. In the announcement, CFPB Director Rohit Chopra said, “Federal law generally prohibits debt collectors from charging additional fees not authorized by the original loan.”
What costs are impacted?
The advisory specifically targets so-called “payment fees”, also known as convenience fees, which debt collectors may charge consumers directly for accepting payment over the phone, through an online service or through another specified payment channel.
Additionally, the Bureau specifically notes that where a third-party payment processor charges consumers a payment fee and remits any amounts that may be related to those fees, the debt collector may have unlawfully collected a fee from consumers under of the rationale set out in the Office’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, commission, 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 USC § 1692f(1) (emphasis The collection of certain “amounts” is generally reflected in the CFPB regulations for implementing the FDCPA, Regulation F, at 12 CFR § 1006.22(b).
The exact scope of the “amounts” debt collectors are prohibited from collecting under FDCPA Section 808(1) has been the subject of debate over the years. Some courts have held that collection agent payment charges are not “incidental to the principal obligation” and are therefore permissible. In addition, some courts have found that general contract law allows payment charges to be levied where a separate agreement exists between the debt collector and the consumer. The CFPB, however, disagrees with both interpretations.
Rather, the CFPB takes the uncompromising position that Section 808(1) should be interpreted broadly and with little room for ambiguity. The CFPB expressly rejected the notion that payment charges are not “incidental to the principal obligation” explaining that the phrase “any amount” essentially creates a blanket prohibition on collectors collecting charges without a express permission to do so found in either the underlying loan agreement or another area of law. Similarly, the CFPB rejected the idea that where a separate agreement exists between the debt collector and the consumer, only the principals of general contract law can provide sufficient authorization for the debt collectors to collect the costs of payment under section 808(1).
Instead, for a debt collector to legally charge a fee for accepting payment through a particular payment channel, a debt collector must be able to indicate a affirmative permission to collect such a fee in (a) the underlying loan agreement or (b) another area of law. If nothing can be found in the underlying loan agreement, the laws are silent on the matter, or the laws only passively permit the charging of such charges, the debt collector will not have sufficient authority to charge fees in an authorized manner, thereby violating the FDCPA and Regulation F.
According to the Bureau, its position on the requirements of section 808(1) is supported by prior agency and court interpretations. Specifically, the CFPB noted that a 2017 CFPB compliance bulletin regarding the legality of telephone payment charges interpreted the phrase “permitted by law” as requiring express authorization by contract or state law. . The Bureau also cited several cases where the courts have interpreted section 801(1) in the same way. Finally, the Bureau noted that the FTC had reached a similar conclusion on the requirements of Section 808(1) in a 1988 FTC Commentary, in which the FTC stated that, if the underlying contract is silent on the matter, a debt collector may only collect fees and charges expressly authorized by state law under the FDCPA.
The advisory opinion is issued pursuant to the authority of the CFPB to interpret the FDCPA under the Consumer Financial Protection Act. The CFPB views the advisory opinion as an interpretative rule exempt from the notice and comment requirements of the Administrative Procedures Act.
