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The Consumer Finance Protection Bureau (“CFPB”) has issued an advisory warning collection agencies that they may charge illegal fees from consumer borrowers. In particular, the Bureau has interpreted Section 808(1) of the Fair Debt Collections Practices Act (“FDCPA”) to prohibit “pay-to-pay charges” unless either the underlying contract establishing the debt , or an applicable law authorizes the fees. In the announcement, CFPB Director Rohit Chopra said, “Federal law generally prohibits debt collectors from charging additional fees not authorized by the original loan.”
Which fees are affected?
The report specifically targets so-called “pay-to-pay fees,” also known as convenience fees, which collection agencies could charge consumers directly for accepting a payment over the phone, through an online service, or through another specified payment channel .
In addition, the Bureau expressly states that when a third-party payment processor charges consumers pay-to-pay fees and transfers amounts that may be associated with those fees, the collection agency runs the risk of illegally collecting fees from Consumers within the framework of the justification to be raised in the advisory opinion of the Bureau.
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, duty, or expense associated with the principal liability), unless such amount is expressly authorized by the agreement creating the liability, or permitted by law.” 15 USC § 1692f(1) ( added emphasis). This prohibition against collecting certain “amounts” is generally reflected in the CFPB regulations implementing the FDCPA, Regulation F, at 12 CFR §1006.22(b).
The exact scope of what “amounts” collection agencies are prohibited under Section 808(1) of the FDCPA has been the subject of some debate over the years. Some courts have found that debt collectors’ fees are not “ancillary to the principal obligation” and are therefore permissible. In addition, some courts have found that general contract law allows for the charging of pay-to-pay fees when there is a separate agreement between the collection agency and the consumer. However, the CFPB contradicts both interpretations.
Instead, the CFPB takes an uncompromising position that Section 808(1) should be interpreted broadly with little room for ambiguity. The CFPB specifically rejected the notion that pay-to-pay fees are not “additional to the principal obligation,” stating that the phrase “any amount” essentially creates a blanket prohibition on collection agencies charging fees without an express license to do so which is found in either the underlying loan agreement or another jurisdiction. Similarly, the CFPB rejected the idea that where a separate agreement exists between the collection agency and the consumer, the principles of general contract law alone give collection agencies sufficient authority to collect pay-to-pay fees under Section 808 ( 1) can offer.
In order for a collection agency to charge a fee for accepting a payment through a specific payment channel, a collection agency must be able to reference one instead positiveAuthority to charge such a fee either (a) in the underlying loan agreement or (b) in another jurisdiction. If the underlying loan agreement is not included, or laws are silent, or laws passively permit the collection of such fees, the collection agency does not have sufficient authority to legitimately collect the fees and is in violation of the FDCPA and Regulation F .
According to the Bureau, its position on the requirements of Section 808(1) is supported by previous regulatory and judicial interpretations. In particular, the CFPB found that a 2017 CFPB Compliance Bulletin on the legality of telephone charges interpreted the phrase “permitted by law” to require express approval by contract or state law. The Bureau also cited several instances where courts had similarly interpreted Section 801(1). Finally, the Bureau noted that the FTC came to a similar conclusion on the requirements of Section 808(1) in a 1988 FTC Commentary, in which the FTC noted that a collection agency may collect additional debt only if the underlying Contract on this matter does not state fees and charges that are expressly permitted by state law under the FDCPA.
The Opinion is prepared under the authority of the CFPB to interpret the FDCPA under the Consumer Financial Protection Act. The CFPB regards the Opinion as a rule of interpretation exempt from the requirements of the Administrative Procedures Act for notice and comment.
The content of this article is intended to provide a general guide to the topic. Professional advice should be sought in relation to your specific circumstances.
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