Do Your Standard Practices Violate the FDCPA?

It’s such a standard business practice we generally don’t think twice about it anymore: when making a payment, if the payer wishes to use a credit card or check-by-phone, she can expect to be charged a “convenience fee”.  These fees can be a flat amount, or calculated as a percentage of the transaction.

In demand letters or other correspondence regarding payments, it is common for creditors to include language such as the following: “There will be a $5.00 processing fee for all credit cards or checks over the phone.”  Some  collectors have received an unexpected response to such a letter: an FDCPA lawsuit.

The Problem

The Fair Debt Collection Practices Act (“FDCPA”) prohibits any unfair practice, and defines that phrase to include “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).

As the convenience fee is not authorized in the underlying contract, assuming your state does not expressly allow a convenience fee, demanding the fee is a violation.  Therefore, even if the collector doesn’t collect the fee, demanding payment in the letter is a violation because the letter is misleading to the least sophisticated consumer.  See, e.g., Quinteros v. MBI Associates, Inc., 2014 WL 793138 (E.D.N.Y. Feb. 28, 2014)

A Safe Harbor

One creative defense debt collectors have presented in court is that the convenience fee is not a “collection” as defined in the statute.  While this argument has not prevailed in general, even the courts that have held collectors liable for demanding the convenience fee have ruled that it is not a “collection” under the statute if the collector is only passing on a fee charged by a third party, rather than originating the fee itself.  That is, if you are “passing through” a charge from the third-party vendor, you are probably okay.

Practically speaking, the most iron-clad way to process credit card payments is to have a third-party vendor actually collect the payment from the debtor and then remit it to you.  Then the third-party processor can charge whatever fee they wish without concern for violating the FDCPA.

A Lack of Clarity and Precedent

Other than Quinterios cited above, the only other reported case on this issue is Acosta v. Credit Bureau of Napa County, C.A. No. 14 C 8798 (N.D. Ill. Apr. 29, 2015).  This case involved a demand letter that actually listed several options for payment, including one single option that required a convenience fee of $14.95.  The court held that including the convenience fee in the demand letter was a violation of the FDCPA.  The court first held that the fee was a “collection” under the FDCPA because it was not passed through to a third-party vendor.  The court went on to rule that the fee was not authorized by the agreement or by law, and so was a violation.

It should be noted that these two cases are binding precedent only in their jurisdictions, although they will be considered persuasive authority by any federal court, especially given the paucity of reported decisions.  It should also be noted that the court’s ruling that the fee is a “collection” at all under the FDCPA is questionable, and expressly based on legislative intent, rather than strict statutory interpretation.

Conclusion

The FDCPA prohibits collecting any fee that is not authorized by the underlying agreement or by law.  Creative arguments about the definition of “collection” aside, the plain language would seem to prohibit third-party collectors from charging convenience fees.  The only truly compliant manner to charge these fees is to have credit card payments directly processed by a third-party.  Nevertheless, it remains standard practice in the collections industry, and there is no nationally applicable case law directly holding convenience fees are a violation of the FDCPA.  Proceed at your own risk.

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