Convenience Fees and the Fair Debt Collection Practices Act
Looking to squeeze more money out of us, creditors often charge “convenience fees” for the “convenience” of being able to use different methods of payment. For example, a creditor might allow payment by phone for a convenience fee of $25.00.
Although lower court holdings are not terribly clear, these practices likely violate the Fair Debt Collection Practices Act (the “FDCPA”). Three recent court decisions highlight these issues and serve as a reminder to consumers and debt collectors of the limited circumstances upon which convenience fees can be collected.
Relevant Provisions of the FDCPA to Convenience Fees
Consumers have argued that convenience fees violate several provisions of the FDCPA, including:
- 15 U.S.C. § 1692e, which states, “A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.”
- 15 U.S.C. § 1692e(2), which prohibits debt collectors from making a “false representation of (A) the character, amount, or legal status of any debt; or (B) any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt.”
- 15 U.S.C. § 1692e(10), which prohibits debt collectors from “The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.”
- 15 U.S.C. § 1692f, which states, “A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt.”
- 15 U.S.C. § 1692f(1), which prohibits debt collectors from “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.”
Quinteros v. MBI Associates, Inc.
In Quinteros v. MBI Associates, Inc., 999 F. Supp. 2d 434 (E.D.N.Y. 2014), the plaintiff alleged that a debt collector’s letter purporting to charge a $5.00 processing fee for payments by phone or credit card violated the FDCPA because the charge was not set forth in the original contract and was incidental to the debt. The court held that the plaintiff had stated a claim that the letter imposing the additional fee violated 15 U.S.C. § 1692f, which prohibits debt collectors from using “unfair or unconscionable means to collect or attempt to collect any debt.” Id. at 439.
Acosta v. Credit Bureau of Napa County
In Acosta v. Credit Bureau of Napa County, No. 1:14-cv-08198 (N.D. Ill. 2015), the plaintiff received a collection notice for $524.59. The notice helpfully listed six “easy” payment options, including one with a convenience fee. That option allowed the plaintiff to pay with a credit card for a convenience fee of $14.95.
The plaintiff sued the creditor asserting that that $14.95 convenience fee violated § 1692f(1) of the FDCPA, which prohibits “The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation [emphasis added, editor) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” The court’s analysis involved two steps. First, the court had to determine whether 15 U.S.C. §1692f(1) was applicable and specifically, whether there was a “collection.” Secondly, if there was a “collection,” whether the fee fell within the statutory exceptions.
The creditor filed a motion to dismiss, arguing that there was no “collection” and therefore no violation of 15 U.S.C. § 1692f(1). The creditor contended that the term “collection” means “to claim as due and receive payment for.” The agency argued that the $14.95 credit card convenience fee was never claimed as due and more importantly that they provided other payment options, which did not require a convenience fee.
The court did not agree with the creditor. The court determined that for there to have been no collection for the creditor, then that $14.95 convenience fee should have passed through to the third party processing the credit card payment (not the creditor), which it did not. Since there was a collection, the court then went on to determine whether it was expressly authorized by the agreement creating the debt or permitted by law. The court found that the $14.95 fee did was neither expressly authorized nor permitted by law.
Lindblom v. Santander Consumer USA
In Lindblom v. Santander Consumer USA, No. 1:15-cv-00990, 2018 U.S. Dist. LEXIS 993313267 (E.D. Cal. Jan. 22, 2018), the consumer was offered a variety of methods for payment. While some of the options were free, the consumer opted to make several payments using a “speedpay” service through Western Union. Use of the service cost the consumer $10.95 convenience fee per use.
As it turned out, Santander and Western Union split the convenience fee. The consumer brought a class action lawsuit asserting that Santander’s collection and retention of the speedpay fees violated § 1692f(1) of the FDCPA. Santander filed a motion for summary judgment asserting that the consumers expressly authorized the speedpay fees when they knowingly agreed to use the speedpay service.
As stated above, § 1692f(1) prohibits 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.” Relying on provisions of state law, which allow a written contract to be modified by an oral agreement, Santander contended that each time the consumer used speedpay, she and Santander modified the underlying contract to allow the convenience fee. The court was not persuaded.
Because the parties’ underlying contract did not address the speedpay fees in any manner, the court concluded that there could be no oral modification. “An ‘oral modification’ presupposes an existing term or provision in writing.” Lindblom at *17. Further, because the plaintiff was not informed that Santander was keeping a portion of the speedpay fee, the plaintiff could not have knowingly agreed to the modification. The court was further persuaded by the fact that § 1692f(1)’s purpose is to preclude debt collectors from implementing a method to increase their compensation through the collection of service charges in addition to the underlying debt.
Take Away
The inconvenient truth is that there is nothing convenient about convenience fees. They can more accurately be called “tack-on” fees. While there are incredibly narrow applications for convenience fees, for the most part, these fees violate the FDCPA. Nevertheless, since most consumers are unaware of this, it is unlikely creditors will voluntarily stop adding convenience fees to transactions.
Consumers should examine their agreements with creditors. If the consumer does not have a copy of their agreement, they should ask the creditor for a copy. If there is no express language in the agreement stating that past-due accounts sent to collections might incur additional costs, more likely than not, the creditor cannot charge a convenience fee.