In Lindblom v. Santander Consumer USA, Inc., 2016 WL 2625925, at *3-7 (E.D.Cal., 2016), Chief Judge O’Neill allowed Plaintiff’s Rosenthal Act claim to proceed past the pleading stage.Plaintiff made payments on the loan by phone and online through Western Union’s “Speedpay” service. To do so, Plaintiff was required to pay a fee to Western Union.   Plaintiff alleges Western Union then remitted most of the Speedpay fee it collected to Santander.  Plaintiff alleges that, in doing so, Defendants created a “partnership,” the purpose of which is to help Santander increase its profits by charging the customer the Speedpay fee and splitting the proceeds.  Plaintiff asserts this fee-sharing agreement violated the FDCPA and the Rosenthal Act.  Specifically, Plaintiff asserts that Santander violated § 1692f(1) of the FDCPA and, in turn, violated § 1788.17 of the Rosenthal Act, “which prohibits any entity covered by the Rosenthal [Act] from violating the [FDCPA].” Plaintiff also alleges Defendants’ fee-charging-and-splitting arrangement independently violated the Rosenthal Act “each and every time Western Union charged the Speedpay fee…and shared or ‘kicked back’ a portion of that fee to any entity defined as a debt collector by the Rosenthal [Act].”   On behalf of a putative class, Plaintiff brings, among others, a claim against Santander for violation of the Rosenthal Act, premised on Santander’s alleged violation of § 1692f(1).

Judge O’Neill first said that the claim was not exempt from the Rosenthal Act because the SpeedPay obligation was part of the overall debt being collected by Santander and, therefore, was subject to the Rosenthal Act..

Santander contends Plaintiff cannot establish the second element of a Rosenthal Act claim because the Speedpay fee is not a “debt” under the Act. See Doc. 53-1 at 5. Santander argues that “[p]aying the Speedpay fee is no different from purchasing a good or service from a retailer and paying for it at the point of sale.” Id. (citing Gouskos v. Aptos Vill. Garage, Inc., 94 Cal. App. 4th 754 (2001)). Gouskos—the only authority Santander cites—does not support its position. . . .There is no dispute that there is a debt between Plaintiff and Santander or that Santander is a debt collector here. The issue is not whether the Speedpay fee is a “debt” under the Rosenthal Act; the issue is whether under § 1692f(1) Santander may lawfully receive a portion of the Speedpay fee when collected in connection with Plaintiff’s debt payments to Santander.

Judge O’Neill then went on to cite the overwhelming authority for the proposition that undisclosed fee splitting constituted an unfair practice under the Rosenthal Act.

A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:  (1) 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. . . .A number of district courts have addressed situations that are analogous to the one presented here, with generally consistent results. In Shami v. Nat’l Enter. Sys., No. 09-cv-722 (RRM) (VVP), 2010 WL 3824151, at *1 (E.D.N.Y. Sept. 23, 2010), the defendant-debt collector sent the plaintiff a collection letter that stated, among other things, that he had the option to pay his debt by phone or online, but that transaction fees would be charged if he did so. The plaintiff alleged this letter violated § 1692f(1) because it was an attempt to collect an amount not authorized by the parties’ contract or permitted by applicable New York law. Id.  The court, noting an apparent split in district court authority, found that the plaintiff had stated a claim under § 1692f(1) and denied the defendant’s motion to dismiss. Id. at *3-4. The court noted that other courts had found similar fees to be permissible under the FDCPA because they were collected entirely by third parties. Id. at *3 (discussing Lewis v. ACB Bus. Servs., Inc., 911 F. Supp. 290 (S.D. Ohio 1996) and Lee v. Main Accts, Inc., 125 F.3d 855 (6th Cir. 1997)). The court further noted, however, that another court had found that the plaintiff stated a claim against the defendant-debt collector under § 1692f(1) for sending the plaintiff a collection letter that offered the option of paying the debt by phone or telephone for a fee, which the court held was “incidental” to the debt. Id. (discussing Longo v. Law Office of Gerald E. Moore & Assocs., P.C., No 04 C 5759 (N.D. Ill. Feb. 3, 2005)).  The court agreed with the Longo court’s interpreting § 1692f(1) to prohibit “the collection of any fee in excess of the underlying debt unless authorized by prior agreement or state law,” and concluded that, at the pleading stage, it was indeterminable whether the subject transaction fees were an “attempt to pass the costs of third-party charges to Plaintiff or…a method of obtaining increased compensation through the impermissible collection of service charges in addition to the underlying debt.” Id. at *4 (emphasis in original). Subsequently, however, the court granted summary judgment to the defendant because the evidence revealed that the defendant had not collected any portion of the collection fees. See Shami v. Nat’l Enterprise Sys., 914 F. Supp. 2d 353, 358-59 (E.D.N.Y. 2012).  A number of district courts have agreed with Shami‘s analysis. For example, Quinteros v. MBI Assocs., Inc., 999 F. Supp. 2d 434 (E.D.N.Y. 2014), is materially identical to Shami and explicitly followed its analysis. In that case, the plaintiff alleged the defendant-debt collector’s sending her a debt collection notice that provided a $5.00 processing fee for any payment made over the phone violated § 1692f(1). Id. at 435. The defendant moved to dismissing, arguing that it was neither “unfair” nor “unconscionable,” and thus not a violation of § 1692f(1), to charge debtors a processing fee when they voluntarily pay their debt over the phone. Id. at 438.  The court rejected this argument on the ground that it “cut[ ] against the plain language of § 1692f(1).” Id. According to the court, § 1692f(1)’s “plain instruction [provides] that the collection of any amount incidental to the principal obligation, unless otherwise authorized by agreement between the parties or permitted by law, violated the FDCPA.” Id. The court reasoned “it would be anomalous to conclude ‘any amount’ does not encompass the processing fees at issue.” Id. at 438. The court therefore found the plaintiff had stated a claim under § 1692f(1) because the $5.00 processing fee was “incidental” to the principal obligation and the defendant did not argue the fee was otherwise permissible under the parties’ agreement or New York law. Id. at 439 (citing Shami, 2010 WL 3824151, at *2-4).  Campbell v. MBI Assocs., Inc., 98 F. Supp. 3d 568 (E.D.N.Y. 2015), is materially indistinguishable from Quinteros. As the court observed, both cases “involved the same defendant and the exact same claim raised.” Id. at 580. The court denied the defendant’s cross-motion for summary judgment on the plaintiff’s § 1692f(1) claim, reasoning that the subject $5.00 processing fee was an “amount” under § 1692f(1) and, because it was undisputed the fee was neither contractually nor statutorily permissible, the defendant’s “[c]ollection of this fee…[was] deemed a violation of § 1692f[ (1) ].” Id. at 582. Accordingly, the court granted the plaintiff’s cross-motion for summary judgment on her § 1692f(1) claim. Id. at 583.  In Weast v. Rockport Fin., LLC, 115 F. Supp. 3d 1018, 1019 (E.D. Mo. July 17, 2015), the court explicitly concurred with Shami, Quinteros, and Campbell. As in those cases, Weast concerned whether the defendant-debt collector’s charging and collecting a $3.00 “convenience fee” when the plaintiff-debtor paid her debt violated § 1692f(1). The court, like the courts in Shami, Quinteros, and Campbell, denied the defendant’s motion to dismiss, finding that the plaintiff had stated a claim that the convenience fee violated § 1692f(1). Id. at 1021; see also Muhammad v. PNC Bank, N.A., No. 2:15-cv-16190, 2016 WL 815289, at *3 (S.D. W. Va. Feb. 29, 2016) (following Quinteros).  Another court followed the lead of these courts approximately one month ago. See Wittman v. CB1, Inc., CV 15-105-BLG-SPW-CSO, 2016 WL 1411348 (D. Mont. Apr. 8, 2016). In that case, the court considered whether the defendant’s charging a 2.5% surcharge on any payment made by debit or credit card violated § 1692f(1) as a prohibited “incidental” fee. Id. at *1. The court, following “[t]he majority of courts [that] have found that similar transaction fees are incidental to the principal obligation,” concluded that it did. Id. at *4. The court noted that the only court to conclude otherwise was the Central District of California in Flores, 2015 WL 4254032.  Flores, similar to the cases discussed above and this one, involved whether the defendant’s charging $5.00 transaction fee for debt payments optionally and voluntarily made by credit card violated § 1692f(1). Id. at *8. The court concluded that it did not, reasoning that its  “conclusion is in line with the intentions of the statute. Section 1692f seeks to prevent unfair or unconscionable methods of collecting a debt. Plaintiff has made no argument that this practice was inherently unfair or unconscionable…. Discouraging debt collectors from offering the additional option for a method of payment does not further the purposes of the FDCPA, and it would seem unfair or inconvenient to many debtors to be deprived of the opportunity to pay by credit card as a result of ban on an opt-in fee to cover costs.”  Id. at *10.   The problem with this analysis is that it assumes courts have discretion to determine whether charging a debtor an unauthorized fee is “unfair or unconscionable.” Contrary to the Lopez court’s suggestion, the Court need not assess whether Santander’s alleged collection of the Speedpay fee is “unfair” or “unconscionable” because Congress has already made that determination. As the court in Quinteros explained:  “Regardless of the exact meaning of “unfair or unconscionable,” the FDCPA explicitly prohibits “[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.” 15 U.S.C § 1692f(1) (emphasis added). Therefore, it is immaterial that a five-dollar transactional fee was not among the particular, admittedly more egregious examples listed in the legislative history accompanying passage of the FDCPA. What matters is § 1692f(1)’s plain instruction that the collection of any amount incidental to the principal obligation, unless otherwise authorized by agreement between the parties or permitted by law, violates the FDCPA.” Quinteros, 999 F. Supp. 2d at 438.  The Court further disagrees with the Lopez court’s determination that the at-issue fee could not violate § 1692f(1) because it was not “incidental” to the plaintiff’s debt. 2015 WL 4254032, at *10. Whether a fee is “incidental to the principal obligation” is not dispositive. As the Campbell court observed:  “By its terms, § 1692f(1) prohibits the collection of any amount which is not expressly authorized by the agreement creating the debt or permitted by law, including any interest, fee, charge, or expense incidental to the principal obligation. Accordingly, there is no need to consider whether the $5.00 processing fee is “incidental to the principal obligation.” The $5.00 is an “amount,” and it is undisputed that the processing fee was neither contractually authorized nor permitted by statute.”  98 F. Supp. 3d at 582 (emphasis in original). The Court therefore need not determine whether the Speedpay fee is “incidental” to Plaintiff’s debt. “The only inquiry under § 1692f(1) is whether the amount collected was expressly authorized by the agreement creating the debt or permitted by law.” Allen ex rel. Martin v. LaSalle Bank, N.A., 629 F.3d 364, 368 (3d Cir. 2011).  Thus, “whether [the Speedpay] charges are permissible within the meaning of the FDCPA turns on California law” because neither party suggests there is a controlling agreement between the parties. See Dey, 170 Cal. App. 4th at 727 (citation, quotation marks, and emphasis omitted); see also Riding v. Cach LLC, 992 F. Supp. 2d 987, 997-98 (C.D. Cal. 2014) (“Under § 1692f(1), where parties have not expressly agreed on charges to be collected with respect to a debt, state law determines whether additional charges are permitted.”). Santander does not point to any California law that permits the fee, but argues an opinion of the California Attorney General concerning credit card issuers supports its contention that the fee was permissible. See Doc. 53-1 at 19 (citing 85 Cal. Op. Att’y Gen. 215, 2002 WL 31440180 (2002)). Specifically, Santander quotes the following from the opinion to support its position:  “Charging a fee for a special payment option that may benefit the cardholder, where the fee is set forth in the credit card agreement and the cardholder is free to choose or reject the option, would not come within the provisions of the Act or its federal counterpart which are directed at “unfair or deceptive” collection practices, particularly where the fee covers an additional cost incurred by the creditor.”  85 Cal. Op. Att’y Gen. 215, 2002 WL 31440180, at *4 (emphasis added). Santander curiously omits from its brief the italicized portion. See Doc. 53-1 at 10. The opinion notes that because “a creditor is prohibited by federal law from charging a fee that is not ‘expressly authorized by the agreement creating the debt or permitted by law’…[c]harging a fee that is expressly authorized by the credit card agreement would be in compliance with the federal law and therefore permissible under [the Rosenthal Act].” Id. at *3 (quoting § 1692f(1) (emphasis added)). The opinion concludes that “[a] financial institution that issues credit cards may charge a cardholder a service fee…if charging the fee is authorized in the credit card agreement.Id. at *4 (emphasis added). Simply put, the opinion provides no support for Santander’s position that the Speedpay fee was permissible under California law. If anything, the opinion directly undermines Santander’s position.  At this stage of the litigation, the Court must assume the truth of Plaintiff’s allegations. Following the lead of the overwhelming majority of other courts, the Court finds that Plaintiff has plausibly alleged Santander’s collecting a portion of the Speedpay fee violated § 1692f(1). However, the Court agrees with Plaintiff that, like in Shami, if it turns out Santander did not collect any portion of the Speedpay fee, her § 1692f(1) claim fails. See Doc. 56 at 9-10; Wittman, 2016 WL 1411348, at *4 (“[M]any of the courts that found similar fees were incidental to the principal obligation did note that the permissibility of the fee under the FDCPA ultimately turns on whether or not the debt collector retains any portion of the fee.”). The Court expects Plaintiff will honor that representation to Santander and the Court.