CFPB Warns Debt Collectors About Fees

The Consumer Financial Protection Bureau (CFPB) on Wednesday (June 29) issued an advisory opinion warning debt collectors that most “pay-to-pay” fees that they often charge violate federal law.

These charges, commonly described by debt collectors as “convenience fees,” are imposed on consumers who want to make a payment in a particular way, such as online or by phone.

“Federal law generally forbids debt collectors from imposing extra fees not authorized by the original loan,” said CFPB Director Rohit Chopra. “Today’s advisory opinion shows that these fees are often illegal, and provides a roadmap on the fees that a debt collector can lawfully collect.”

The CFPB makes a distinction between debt collectors that allow consumers to make payments by phone or online without charging additional fees, and some debt collectors that impose additional fees for those types of payments. The CFPB confirmed that these types of fees are often illegal and the opinion seeks to stop this practice.

The advisory opinion interprets the language in Section 808 of the Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from collecting any amount that is not expressly authorized by the underlying agreement or permitted by law. The opinion covers three debt collection practices:

1. Scope of illegal fees: The CFPB considers that the collection of any fee is prohibited unless the fee is in the consumer’s contract or permitted by law

2. Silence in the law is not an authorization: Debt collectors cannot follow the rule that what is not forbidden it is permitted. They can only collect a fee when it is in the agreement or is permitted by law.

3. Role of payment processors: Debt collectors violate the law when using payment processors who charge fees at a minimum if the debt collector receives a kickback from the payment processor.

This new advisory opinion is another step in the CFPB’s crusade against “junk fees,” but it adds a new approach that may save resources for the agency, while being as equally effective as a new rule. This advisory opinion is issued under the CFPB’s authority to interpret the law, in this case the FDCPA. An advisory opinion is an interpretive rule, and it is exempt from the notice-and-comment rulemaking requirement of the Administrative Act. Therefore, the agency doesn’t need to go through the process of publishing a rulemaking. By avoiding the lengthy rulemaking process, the agency can start applying the new interpretation of the rule with immediate effect.

This is not the first time that the bureau has used its advisory opinions to reinterpret a rule; it recently did so in May to remind banks and lenders that they need to follow fair lending laws when canceling loans or changing terms and not just during the application process.

Read more: CFPB’s Opinion on Fair Lending Rules Could Extend to AI

Chopra recently stated that the agency “is seeking to move away from highly complicated rules” and the new approach would include a “dramatic increase” of guidance. This could indicate that the CFPB may start using more frequently advisory opinions, instead of proposing new rules. This could partially explain the short number of proposed rulemakings included in the spring 2022 regulatory agenda published last week, on June 21.

Read also: CFPB’s 2022 Spring Rulemaking Agenda: What’s In and Out

However, this doesn´t mean that the agency will stop issues new rules. Last week, the CFPB announced a review of the credit card industry´s penalty policies and it published an Advance Notice of Proposed Rulemaking asking for information to determine whether to change the limits that card issuers need to observe when they charge late fees under the CARD Act.