The CFPB Says Fees and Fee-Related Disclosures For Payments-By-Phone May Constitute an Unfair and Deceptive Practice and Violate Federal Debt Collection Statutes
In a Compliance Bulletin released July 27, 2017, the Consumer Financial Protection Bureau (CFPB) cautioned covered persons and service providers that fees for pay-by-phone services (called “phone pay fees”) may run afoul of “sections 1031 and 1036 of the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition on engaging in unfair, deceptive, or abusive acts or practices (collectively, UDAAPs) when assessing phone pay fees.” In its Bulletin, the CFPB also provided guidance to debt collectors who receive phone pay fees about the possible consequences under the Fair Debt Collection Practices Act (FDCPA).
Phone Pay Fees May Constitute UDAAPs
Many service providers permit their customers to pay for services by telephone using a credit card, debit card, or other electronic transfer. In the ordinary course of its supervision and enforcement activities, the CFPB has “identified conduct that may violate or risks violating Federal consumer financial laws relating to” such phone pay practices. The CFPB provided a “non-exhaustive list of examples,” and has cautioned providers that “the Bureau will be watching these practices closely”:
Failing to disclose the prices of all available phone pay fees when different phone pay options carry materially different fees;
Misrepresenting the available payment options or that a fee is required to pay by phone;
Failing to disclose that a phone pay fee would be added to a consumer’s payment could create the misimpression that there was no service fee;
Lack of employee monitoring or service provider oversight may lead to misrepresentations or failure to disclose available options and fees.
Of note, Dodd-Frank expressly regulates the acceptance of certain fees, including phone pay fees. See, e.g., 15 U.S.C. § 1637(1), 12 C.F.R. § 1026.10(e) (forbidding creditors from collecting a separate fee to allow consumers to make a payment by any method (including by telephone), unless the payment method will expedite service by a representative of the creditor, i.e., will result in earlier application of the payment). Through its Bulletin, the CFPB is informing covered persons that even strict compliance with these regulations may still run afoul of Dodd-Frank if the fee itself and attendant facts are not candidly disclosed.
Charging Phone Pay Fees May Violate The FDCPA
The CFPB also cautioned loan servicers and other third-party debt collectors as defined under the FDCPA that the imposition of a phone pay fee may violate Section 808(1) of the FDCPA, which forbids debt collectors from collecting “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.” The CFPB’s Supervision Office has “found that one or more mortgage servicers that met the definition of ‘debt collector’ under the FDCPA violated the Act when they charged fees for taking mortgage payments over the phone to borrowers whose mortgage instruments did not expressly authorize collecting such fees and who reside in states where applicable law does not expressly permit collecting such fees.” Here again, the collection of phone pay fees may present a trap for unwary mortgage loan servicers or other third-party debt collectors.
The CFPB’s “Expectations”
The CFPB ended its Bulletin with a list of its “expectations” for applicable loan servicers and/or other covered persons, although the Bulletin is non-binding, and the “Bureau does not mandate any particular method for informing consumers about the available phone pay options and fees.” Nevertheless, the CFPB recommends that “entities should consider the following suggestions in assessing whether their practices may present a risk of constituting a UDAAP or FDCPA violation:”
- Review applicable State and Federal laws, including the FDCPA, to confirm whether entities are permitted to charge phone pay fees;
- Review underlying debt agreements to determine whether such fees are authorized by the contract;
- Review internal and service providers’ policies and procedures on phone pay fees, including call scripts and employee training materials, and revise policies and procedures to address any concerns identified during the review, as appropriate;
- Review whether information on phone pay fees is shared in account disclosures, loan agreements, periodic statements, payment coupon books, on the company’s Web site, over the phone, or through other mechanisms;
- Incorporate pay-by-phone issues in regulator monitoring or audits of calls with consumers;
- Review consumer complaints regarding phone pay fees;
- Perform regular reviews of service providers as to their pertinent practices;
- Review that the entity has a corrective action program to address any violations identified and to reimburse consumers when appropriate.
In addition to these “suggestions,” the CFPB advises banks and service providers to review their “production incentives” programs to mitigate against any risk of motivating employees to purposefully violate the CFPB’s guidance to achieve a bonus or some other financial gain.