Recently, regulators—particularly the Federal Trade Commission (“FTC”)—have taken an active interest in companies charging “transaction fees” when collecting on their accounts. Regulators are particularly concerned about situations where the borrower is not given any meaningful choice to avoid extra costs and fees. Fees for payments by phone, overnight delivery, online payments, and any other “convenience” charges are subject to regulation.
Some of the factors regulators consider are: (1) the charge to the borrower relative to the cost of providing the service, and (2) whether the borrower has meaningful choices to avoid the fees in paying the obligation.
The FTC recently sued Consumer Portfolio Services, Inc. (“CPS”) for violations of the Fair Debt Collection Practices Act (“FDCPA”) and other federal laws. “The FTC alleged that–among other things–‘in numerous instances, CPS has imposed NSF fees in amounts higher than that permitted by contract or law . . . [by assessing] other fees, including late fees, in amounts higher than that permitted by contract or law or when it has no basis to assess the fee.’ It also alleged that: (1) CPS required that consumers pay a fee to obtain an extension, even though the extension did not ‘defer accrued interest or fees’ or ‘stop monthly late fees from accruing on a delinquent account in the month that the extension is granted’, (2) told consumers that they must remit their loan payments through Western Union or MoneyGram via electronic account debit, electronic check, or credit card via telephone, text message, online, or in person at a Western Union or MoneyGram location, but Western Union or MoneyGram charged consumers a ‘convenience fee’ of up to $12 and remitted a portion of each fee to CPS.”
CPS settled with the FTC by: (1) paying a $55 million penalty, (2) agreeing to refrain from all of the above actions (and more), and (3) agreeing to update its systems, policies and procedures to safeguard against the alleged violations.
More recently, the FTC brought a complaint against RTB Enterprises, Inc., and its principal, alleging that: “After pressuring consumers to pay immediately, Defendants deceive consumers into paying transaction and convenience fees for payments authorized by telephone. [RTB] charges consumers a $15.00 ‘transaction fee’ for credit card or debit card transactions authorized by phone or a $10.00 ‘convenience fee’ for check-by-phone transactions . . . Defendants’ transaction fees and convenience fees are significantly more than their out-of-pocket costs.”
In July, at the request of the FTC and the New York Attorney General’s Office, a U.S. District Court halted a Buffalo, New York-based debt collection operation, froze the operation’s assets, and appointed a temporary receiver to take over the defendant’s business pending trial. The FTC and New York Attorney General jointly charged the operation with several violations, including that it charged illegal fees–specifically that it added an illegal $8 “processing fee” when consumers made payments on supposed debts over the phone–in violation of federal and state law.
Payment processing fees have not escaped judicial attention recently either. In Quinteros v. MBI Associates, Inc., 999 F. Supp. 2d 434 (E.D.N.Y. 2014), Judge William F. Kuntz denied a motion to dismiss in a case alleging that a debt collector’s letter purporting to charge a $5 processing fee for payments by phone or credit card violated the FDCPA because the charge was not set forth in the original contract and was incidental to the debt. The district court held that the plaintiff had stated a claim that the letter imposing the additional fee violated 15 U.S.C. § 1692f, which prohibits debt collectors from using “unfair or unconscionable means to collect or attempt to collect any debt.” 999 F. Supp. 2d at 439.
These recent complaints by the FTC and judicial developments highlight the need to review rules for payment charges and options afforded to consumers to pay their obligations without incurring charges.