The Consumer Finance Protection Board (CFPB) issued an advisory opinion regarding the use of convenience fees, also known as “pay-to-pay” fees by collection agencies. It is becoming increasingly common for collection agencies to charge a fee to the consumer for the convenience of making a payment via phone, even though in many cases it costs the collection agency less to handle these types of payments.
“Federal law generally forbids debt collectors from imposing extra fees not authorized by the original loan,” said CFPB Director Rohit Chopra. “Today’s advisory opinion shows that these fees are often illegal, and provides a roadmap on the fees that a debt collector can lawfully collect.”
Chopra also emphasized that the absence of a prohibition of a fee by the CFPB does not make it legal; only fees specifically listed in the consumer’s loan agreement or specifically authorized in legislation can be applied to collections transactions.
While this advisory opinion specifically addresses fees applied by collection agencies for loan payments, we have to wonder if similar guidance is forthcoming on the growing numbers of merchants that are applying surcharges to credit and debit card transactions for everyday purchases. Rules governing surcharging and its less transparent variant “cash discounting” have been established by most card networks and individual states, but so far have escaped the scrutiny of the CFPB. Although the application of surcharges and convenience fees to debit card transactions are expressly prohibited by all card networks and state laws, many merchants have implemented programs that can’t or don’t distinguish between credit cards and debit cards.
Overview by Don Apgar, Director, Merchant Services Advisory Practice at Mercator Advisory Group