On July 31, the Consumer Financial Protection Bureau (CFPB) issued a public bulletin intended to provide guidance to covered persons and service providers who take payments from consumers using pay-by-phone services and charge the consumer a fee for such a service. The purpose of the bulletin was to highlight and re-emphasize the potential for violations of the Dodd-Frank Act’s prohibition on engaging in unfair, deceptive, or abusive acts or practices (UDAAP) and violations of the Fair Debt Collection Practices Act (FDCPA) when assessing phone pay fees. Given these risks, the CFPB warns that it “will closely review conduct related to phone pay fees for potential violations of Federal consumer financial laws.” While not the first time the CFPB has issued guidance on this topic, this is, perhaps, the most direct and obvious warning to financial services providers.
Bulletin 2017-01: Phone Pay Fees
In the bulletin, the CFPB specifically identified as unfair the practice of not specifically disclosing the amount of various transaction fees associated with different payment methods on written materials, and then failing to disclose all of the consumer’s payment method options, and the fees associated with each available payment method, when the consumer contacts the entity by telephone. The CFPB also identified a number of practices that could be deceptive. For example, the CFPB explained that it could be deceptive for an entity to misrepresent the availability of no-fee options or to misrepresent the purpose of a payment option that will result in a fee. The CFPB also explained that it could be a deceptive act or practice to fail to disclose that a fee will be charged when using a pay-by-phone service, or the amount of any such fees that will be assessed.
In the same bulletin, the CFPB noted that the collection of phone pay fees could constitute a violation of the FDCPA. The FDCPA bars a debt collector from using “unfair or unconscionable means to collect or attempt to collect any debt,” including “[t]he 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” (14 U.S.C. § 1692f). Some courts have found that the collection of a “convenience charge” as a fee for expedited processing of a phone payment could be a “fee” that is not “expressly authorized by the agreement creating the debt or permitted by law,” thus creating the basis for a private cause of action under the FDCPA (see Wittman v. CB1, Inc., No. CV 14-105, 2016 WL 3093427, at *2-*3 (D. Mont. June 1, 2016)). However, at least one court has held that a $5 transaction fee charged by a debt collector to consumers seeking to pay by credit card did not violate the statute, when the consumer had to affirmatively choose to agree to the fee instead of paying by an alternative means (see Flores v. Collective Consultants of Cal., No. SA CV 14-0771, 2015 WL 4254032, at *9-*10 (C.D. Cal. Mar. 20, 2015)).
The CFPB did not expressly endorse either court’s position in the bulletin. However, it did note that its supervision arm had “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.”
After outlining the various ways in which entities may violate applicable consumer financial laws, the CFPB then explains ways in which entities may minimize the associated risks. One thing is clear—the CFPB expects that entities will “review their practices on charging phone pay fees for potential risks of committing UDAAPs or violating the FDCPA.” The CFPB’s suggestions include, among other things, reviewing “underlying debt agreements to determine whether such fees are authorized by the contract,” reviewing policies, procedures, call scripts, and training materials, reviewing written disclosures to ensure adequate information is conveyed to consumers, and reviewing “service providers as to their pertinent practices.”
The first thing that becomes abundantly clear when reading the CFPB’s bulletin is that the issues they highlight are applicable to nearly all types of consumer financial products and services. Anyone who collects payments over the phone and charges a fee for that service likely is impacted by the CFPB’s views. Consistent with prior guidance on service providers, this bulletin also goes one step further and suggests that entities need to be mindful of the practices employed by service providers collecting payments on their behalf.
Additionally, it is important to keep in mind that this is not the first time the CFPB has issued guidance on phone pay fees. In the Fall 2014 issue of the CFPB’s Supervisory Highlights report, the CFPB highlighted potential FDCPA risks associated with these practices. Since that time, the CFPB has announced two public enforcement actions that included issues associated with pay-by-phone fees and claims of unfair and deceptive acts or practices. By releasing a guidance bulletin directly on these issues, the CFPB likely is signaling that it continues to uncover practices that may violate UDAAP restrictions or the FDCPA. For entities that do not react to the CFPB’s repeated attempts at putting the industry on notice, it is likely that the chances of leniency on the part of the CFPB are fading.
As the CFPB continues to take action against pay-by-phone practices it deems to constitute UDAAP or a violation of the FDCPA, it is hard not to wonder what the long-term implications might be. Much of the UDAAP risks noted by the CFPB likely can be minimized through disclosures and robust policies, procedures, scripting and training. However, if it is a violation to charge a pay-by-phone fee to a consumer who is protected by the FDCPA, minimizing the associated risks becomes extremely challenging. Will entities start adding clauses into debt agreements that specifically authorize pay-by-phone fees? Will some entities choose to stop offering expedited payment options to all consumers? These questions will be answered over time, but the implications spurred by the CFPB’s guidance could be far-reaching and substantial.