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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
Background: Section 808(1) of the Fair Debt Collection
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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