Most banks do not often find themselves subject to the Fair Debt Collection Practices Act (FDCPA). The FDCPA was a Congressional response, passed in 1977, to the abusive, deceptive, and unfair debt collection practices used by some debt collectors at that time. The FDCPA prohibits a debt collector from using unfair means to collect or attempt to collect any debt.
In order to be subject to the FDCPA, the bank must be acting as a debt collector, which according to the act is anyone who regularly collects or attempts to collect, directly or indirectly, debts owed to another party. The term also includes any creditor that uses any name other than its own to collect or attempt to collect such a debt. In those instances, it would appear to the debtor that a third-party debt collector is attempting to collect such debts, and the creditor would be treated as such. In other words, if ABC Bank collects debts on behalf of ABC Bank then they are not a debt collector, but if DEF Bank collects debts on behalf of ABC Bank then DEF Bank is a debt collector, and if ABC Bank sends out correspondence under the name of DEF Bank, then ABC Bank would be considered a debt collector.
In a recently published advisory opinion, the CFPB advised that the FDCPA prohibits debt collectors from collecting any amount, which includes interest, fees, charges, or incidental expenses unless that amount is expressly authorized by either: a) the agreement creating the debt or b) a law permitting its collection. The CFPB affirmed in the opinion that Section 808(1) of the FDCPA (12 CFR 1006.22) prohibits debt collectors from collecting convenience fees, such as fees for making a payment online or by phone (so called “pay-to-pay” fees), when those fees are not expressly authorized by either the agreement or law. This advisory opinion also clarifies that a debt collector may also violate section 808(1) if a debt collector collects pay-to-pay fees through a third-party payment processor, and the third-party payment processor collects a pay-to-pay fee from a consumer and remits to the debt collector any amount in connection with that fee.
Under the CFPB’s opinion, a fee is not permitted if both the agreement creating the debt and the law are silent. For example, as the CFPB’s interprets the FDCPA, any amounts (including pay-to-pay fees) that are not expressly authorized by an agreement or expressly authorized by law are not permitted under the FDCPA, even if such amounts are the subject of a separate, valid agreement under state contract law. Although some courts have interpreted this separate agreement scenario to permit debt collectors to collect certain pay-to-pay fees, the CFPB disagrees with these courts’ decisions.
Additionally, in light of the CFPB’s recent actions regarding “junk fees,” there’s no guarantee that fees authorized by an agreement or by state law might not still be seen by the CFPB as a UDAAP issue, in the sense that it might not be a violation of the FDCPA, but it could possibly be a UDAAP concern. The CFPB hasn’t been explicit about these pay-to-pay fees being on their radar, but this seems consistent with the CFPB’s recent stances on fees.