Let’s say that it’s time to make your mortgage payment, but too late for you to send payment by check. Your mortgage servicer offers helpful alternatives — you can pay by phone or via its online website. But it charges a fee for the convenience — say, $5 to pay online, and $10 to pay by phone. Generally, such “convenience fees” aren’t covered in mortgage agreements or similar agreements establishing a debt. Instead, debtors are usually asked to agree to such convenience fees in a separate “convenience-fee agreement” with the servicer or payment processor at the time of the charge. But in a recent Advisory Opinion, the federal Consumer Financial Protection Bureau (CFPB) declared that in most circumstances, such convenience-fee agreements are unlawful.

Characterizing these “pay-to-pay” fees as “junk fees charged by debt collectors,” the CFPB stated in its June 29, 2022 Advisory Opinion that unless expressly authorized by the agreement creating the debt or expressly authorized by law (e.g., a state law provision), separate convenience-fee agreements are “unfair practices” that violate both section 808(1) of the Fair Debt Collection Practices Act (FDCPA) (codified at 15 U.S.C. § 1692f(1)), and Regulation F implementing the FDCPA.

Stretching the Text? To reach its conclusions about convenience-fee agreements, the CFPB’s Advisory Opinion engaged in an interesting bit of textual analysis of 15 U.S.C. § 1692f(1) that went beyond what some courts have found the statute to mean.

Under 15 U.S.C. § 1692f, debt collectors may not use “unfair or unconscionable means” to collect or attempt to collect a debt, and the statute provides that the following is such an unfair practice:

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).)

Citing definitions from U.S. Supreme Court opinions, among others, to buttress the CFPB’s gloss on the statutory text, the Advisory Opinion interpreted the words “any” and “including” in 15 U.S.C. § 1692f(1) expansively, with the result that the CFPB considers 15 U.S.C. § 1692f(1) and the related portion of Regulation F (12 C.F.R. § 1066.22(b)) to apply to “any amount collected by a debt collector in connection with the collection of a debt, including, but not limited to, any interest, fee, charge, or expense that is incidental to the principal obligation.” (Emphasis in original.)

Based on this, the CFPB “clarif[ied]” that it considers a pay-to-pay fee of the type discussed here to be an “amount” under 15 U.S.C. § 1692f(1) and 12 C.F.R. § 1066.22(b). By the terms of the statute, such fees are therefore prohibited “unless such amount is expressly authorized by the agreement creating the debt or permitted by law.”

The Advisory Opinion then went on to interpret “permitted by law” narrowly. Rejecting a reading in which “permitted by law” would mean “permitted by the absence of any law prohibiting it,” the CFPB instead chose to read “permitted by law” to mean a situation in which the law affirmatively authorizes the amount to be collected. (An example of such a situation might be one in which a third-party payment processor handles the actual payment for the debt collector, and the processor charges a processing fee specified or authorized by state statute or regulation. In that situation the fee would be “permitted by law.” On the other hand, if the fee were marked up above the amount specified or authorized by statute, as is often the case, it would not be “permitted by law” under the CFPB’s reading.)

Summing up the results of its statutory interpretation, the CFPB advised that “amounts, including pay-to-pay fees, that are neither expressly authorized by the agreement creating the debt nor expressly authorized by law are impermissible…even if such amounts are the subject of a separate, valid agreement under State contract law.” (Emphasis added.)

(In a footnote, the CFPB dryly observed that section 808(1)’s prohibition would not apply in situations where the debt collector is “engaged in a truly separate transaction,” i.e., one in which it “is not collecting or attempting to collect a debt covered by the FDCPA.” So, separate convenience-fee agreements presumably remain valid on those occasions when debt collectors are…not engaged in debt collection. Debt collectors will not find this particularly helpful.)

Court Decisions Vary. In Flores v. Collection Consultants of California (C.D.Cal., Mar. 20, 2015, No. SA CV 14-0771-DOC (RNBx)) 2015 U.S. Dist. Lexis 92732, the U.S. District Court for the Central District of California held that a $5 transaction fee for consumers who elected to pay debt by credit card was not “incidental to the principal obligation” because alternative fee-free means of payment were offered, and the consumer had to “choose to affirmatively and separately opt-in” to make a payment by credit card. (2015 U.S. Dist. Lexis 92732 at *25.) Noting that the FDCPA “is a remedial statute that must be liberally construed,” (2015 U.S. Dist. Lexis 92732 at *24), the court observed that “[d]iscouraging debt collectors from offering the additional method of payment does not further the purposes of the FDCPA.” (2015 U.S. Dist. Lexis 92732 at *26.)

The CFPB’s Advisory Opinion acknowledged Flores, but countered that

the CFPB interprets section 808(1) to apply to “any amount,” even if such amount is not “incidental to” the principal obligation.

(June 29, 2022 Advisory Opinion, p. 5.)

Hedging its bets, the CFPB also cites various dictionary definitions to attempt to claim that pay-to-pay fees are by their nature “incidental to the principal obligation.” Whether these arguments will convince a court remains to be seen. The FDCPA does not itself define “incidental.”

The CFPB’s Advisory Opinion also acknowledged Thomas-Lawson v. Carrington Mortgage Servs., LLC (C.D.Cal., Apr. 5, 2021, No. 2:20-cv-07301-ODW), 2021 WL 1253578.

In Thomas-Lawson, the court reviewed the case law and observed that some federal district courts in California have followed Flores in holding that convenience fees are not “incidental” to principal debts, at least where other fee-free methods of payment are available, but that others declined to follow Flores, instead reading 15 U.S.C. § 1692f(1) to bar collecting any amount, whether or not incidental to the underlying debt. The court performed its own statutory analysis and determined the latter view was the correct one. In effect, the Thomas-Lawson court would agree with the CFPB that “any amount” includes, but is not limited to, fees “incidental to the principal amount.”

However, the Thomas-Lawson court observed that the FDCPA does not prohibit a debt collector from entering into a new contract with a debtor for the added convenience of paying, e.g., by phone, and that convenience fees are not interest or other loan charges of the type listed in 15 U.S.C. § 1692f(1), but rather separate charges incurred for providing an entirely separate service. It seems likely the Thomas-Lawson court would disagree with the CFPB and find that a convenience fee “subject to a separate, valid agreement under State contract law” was not barred by 15 U.S.C. § 1692f(1).

An appeal of the Thomas-Lawson decision is pending in the Ninth Circuit (No. 21-55459), and it will be interesting, to say the least, to see whether the appellate court’s review of that case resolves the varying California federal district court opinions on 15 U.S.C. § 1692f(1) — and in doing so, effectively upholds or smacks down the CFPB’s Advisory Opinion.

For more on the FDCPA and Regulation F generally, see Scott Hyman’s chapter 2 on the Fair Debt Collection Practices Acts in Debt Collection Practice in California (2d ed. Cal. CEB).

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