The Consumer Financial Protection Bureau (CFPB) issued an advisory opinion on June 29, 2022, clarifying its view as to the legality under the Fair Debt Collection Practices Act (FDCPA) of “convenience fees” for optional methods of expedited payment not prescribed in the underlying loan documents, such as payment by phone or on the web. The consumer plaintiff’s bar has been referring to these as “pay-to-pay fees” even though borrowers always have the option to pay by check without a convenience fee.

In short, the press release associated with this advisory opinion quotes CFPB Director Rohit Chopra as clarifying his view that “Federal law generally forbids debt collectors from imposing extra fees not authorized by the original loan,” and that “these fees are often illegal.” As a result, Director Chopra attempts to provide a “roadmap on the fees that a debt collector can collect.” In creating this roadmap, the CFPB notes that some debt collectors who charge “convenience fees” do so even if it is more advantageous to the debt collector to process mobile payments than it is to process paper-check payments.

The legality of convenience fees has been an oft-litigated issue over the past few years, and the CFPB’s new guidance adds to the growing discussion on this issue. As the CFPB explicitly recognizes in its advisory opinion, numerous courts have previously found that the imposition of convenience fees was not illegal under the FDCPA (see, e.g., Flores v. Collection Consultants of Cal., No. SAC 14-0771-DOC, 2015 WL 4254032, at 10 (C.D. Cal. Mar. 20, 2015); Shula v. Lawent, 359 F.3d 489, 492-93 (7th Cir. 2004)). And other courts have recently found the opposite to be true, including the Fourth Circuit in Alexander v. Carrington Mortgage Services, 23 F.4th 370, 377 (4th Cir. 2022). In many ways, this advisory opinion reaffirms the CFPB’s views expressed in its 2017 Compliance Bulletin (2017-1), addressing potential violations of the FDCPA in a similar context. 

On a more nuanced level, this advisory opinion addresses Section 808(1) of the FDCPA (codified as 15 U.S.C. § 1692f), which prohibits “debt collectors” — as defined in the statute — from using certain unfair or unconscionable means to collect a debt. One of the enumerated prohibited means of debt collection set forth in this section is “[t]he 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 opinion provides the following interpretation of the law:

• Interpreting the phrase “any amount” in Section 808(1) of the FDCPA: The CFPB opines thatSection 808(1) of the FDCPA prohibits the collection of any amounts not expressly authorized by the underlying agreement or permitted by law, including but not limited to expenses incidental to the principal obligation. Much of the prior litigation on this issue has concerned the issue of whether a convenience fee is “incidental to the principal obligation,” and courts have issued varying opinions that reach conclusions on both sides of that issue. The CFPB now puts its thumb on the scale with the opinion that a convenience fee, even if not incidental to the principal obligation, still constitutes “any amount,” and is therefore barred when the FDCPA applies unless the amount is expressly authorized by the underlying agreement or permitted by law. As a result, even if a convenience fee is not incidental to the principal obligation, for example because it is a purely optional separate service, the CFPB argues that the common use of the term “any amount” in this section includes a convenience fee within its scope.    

• Interpreting the phrase “permitted by law” in Section 808(1) of the FDCPA: The CFPB’s advisory opinion diverges from the conventional meaning of “permitted” when discussing whether a convenience fee is “expressly authorized by the underlying agreement or permitted by law.” If the underlying agreement expressly authorizes the imposition of a convenience fee, or if applicable law permits the imposition of a convenience fee, this section does not act to prohibit that practice. The scope of this provision has been interpreted by multiple courts over recent years, and opinions on this issue have varied.  The CFPB explicitly acknowledges that at least one recent decision found that “permitted by law” includes instances where state contract law allows parties to enter into a separate, valid contract (see, e.g., Thomas-Lawson v. Carrington Mortgage Services, LLC, No. 2:20-cv-07301-ODW, 2021 WL 1253578 (C.D. Cal. Apr. 5, 2021)). The CFPB, though, declines to adopt this same “separate agreement” reading that has been adopted by numerous courts.

Instead, rather than adopting the plain meaning of the term “permitted” in this context, the CFPB interprets the phrase “permitted by law” to require an affirmative authorization by state or federal law to collect “convenience fees” instead of “mere lack of prohibition.” In other words, the CFPB posits that the absence of prohibition of the fee in state or federal law does not mean it is “permitted by law.” This curious interpretation is not likely to be the end of litigation on this issue.  

• Clarifying when “convenience fees” can be collected: In conjunction with the “permitted by law” discussion set forth above, the CFPB’s advisory opinion also posits the Bureau’s view that “convenience fees” are permissible only if (1) the agreement creating the debt expressly permits the fee and the law does not prohibit it; or (2) a law expressly permits the fee, even if the underlying debt agreement is silent on the matter.  

• Relationship between payment processors and debt collectors: The CFPB interprets the FDCPA to preclude debt collectors from receiving any pecuniary benefit from any “convenience fee” charged by a third-party payment processor unless one of the two conditions immediately above is satisfied. The language the CFPB uses by example here is quite unclear, declaring that the FDCPA is violated under this scenario if“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.”  The term “any amount” is concerning here. For instance, if a debt collector allows consumers to use Western Union to make payments, and the consumer pays Western Union for that service, does the regular monthly payment transmitted to the debt collector count as “any amount” in connection with the fee to Western Union? Presumably not, but the absence of clarity is regrettable.

It is also notable that the advisory opinion’s entire discussion concerning payment processors spans all of two sentences, and lacks many details that would assist industry participants in compliance efforts.

• Notable exclusion: Some state regulators enforcing state statutory restrictions on convenience fees have required debt collectors to issue refunds of convenience fees imposed on borrowers over a defined period of time. No such discussion is contained within this advisory opinion.

Takeaways

It is important to remember that this is only an advisory opinion, and that this guidance only applies to the category of “debt collectors” collecting a “debt” as those terms are narrowly defined under the FDCPA. Of course, many states incorporate portions of the FDCPA into state law and include others within that law’s reach, potentially expanding the practical impact of this discussion. 

It is also notable to observe that the CFPB has yet again focused on limiting certain fees and strengthening its oversight in the consumer financial industry while avoiding more formal rule-making requirements under the Administrative Procedure Act. Whether this advisory opinion will ultimately change binding precedent in jurisdictions that permit “convenience fees” is unknown. It is also likely that the United States Supreme Court’s June 30, 2022, decision in West Virginia v. EPA, 597 U.S. __ (2022), where the Court continued to erode broad deference to regulatory agencies in the process of adopting the “major questions doctrine,” will be cited as part of an effort to mitigate the impact of this advisory opinion.