The CFPB moved to curb the use of so-called convenience fees in the debt collection industry, issuing an advisory opinion that says debt collectors are generally prohibited from charging extra fees for certain types of payment methods such as online or over the phone.

The CFPB’s advisory opinion holds that such “pay to pay” charges violate the Fair Debt Collection Practices Act unless they are expressly authorized by the contractual language of the debt being collected or are otherwise specifically permitted by law. Federal law generally forbids debt collectors from imposing fees not authorized by the original loan.

There has been increased scrutiny in Maryland after a federal appeals court decision on convenience fees earlier this year held that mortgage servicers are debt collectors under the Maryland Consumer Debt Collection Act (MCDCA). This means that a financial institution collecting its own debts could be a collector under the MCDCA.

The U.S. Court of Appeals for the Fourth Circuit Court ruled that collecting fees on any form of loan payment violates the MCDCA if the fees are not set forth in the loan documents. As a result, any fee charged, whether for convenience or to recoup actual costs incurred by lenders and servicers for loan payments made through credit cards, debit cards, the automated clearing house (ACH), etc., must be specifically authorized by the applicable loan documents. If such a fee is not provided for in the applicable loan documents, it would be deemed illegal.

The Maryland Commissioner of Financial Regulation issued an advisory last month urging all lenders and servicers to:
• review their records to determine if improper convenience fees have been assessed
• undertake appropriate reimbursements to affected borrowers

Kaufman & Canoles, P.C. has developed FAQs for the Association, you can view them here. If you have any questions, please contact VP of Advocacy Rory Murray at Rmurray@mddccua.org

The Association continues to engage with the Office of the Commissioner of Financial Regulation on this issue and will have the opportunity to discuss with CFPB Director Chopra during next month’s roundtable.