Many debt collectors charge a credit card processing fee (also known as a convenience fee) to debtors who want to pay with credit cards. This practice has been around for a long time, and is usually justified by the transactional expenses incurred by the collector for making credit cards available. There have recently been new legal challenges made to this practice, alleging that it is a violation of the Fair Debt Collection Practices Act (FDCPA).
What Does the Law Say?
Generally, it is considered a violation if the collector adds special fees or additional charges to the debt that are not specifically authorized by the underlying contract. Many collection agencies have been sued for adding “collection fees” or other charges when the debtor’s agreement with the creditor does not allow for them.
Several broad provisions of the FDCPA are found in section 1692. For example, section 1692(e) lists the various “false or misleading representations” that can result in a violation. The theory is that adding unauthorized fees can be deemed to be false or misleading. Many courts have held that violations do occur in these circumstances.
Another, more specific section of the statute is 1692(e)(2)(A), which prohibits the false representation of the “character, amount, or legal status of any debt….” Finally, 1692(f), titled “unfair practices,” states that it is a violation to collect any amount that is not expressly authorized by the agreement creating the debt or permitted by law.
The Benefit vs. The Risk
So, under what circumstances can a debt collector charge a convenience fee without violating the FDCPA? Various courts are ruling in different directions on this issue, and the cost of litigating a defense to such a claim (especially a class action) outweighs any potential reward that the collector may get from charging the fees. While there are some courts which have held that the fees may be appropriate under certain limited circumstances, at the end of the day, it is not worth the risk.
To avoid this potential pitfall and reduce FDCPA actions, it is wise to refrain from charging debtors “convenience fees.” If you are a creditor, rather than a collector, keep in mind that the Consumer Financial Protection Bureau (CFPB) has taken the position that creditors are to be held accountable for the actions of their collectors.
At Hiday & Ricke, we have never charged convenience fees to debtors, and feel comfortable with this more conservative approach. It is more costly for the firm, but more transparent and avoids the issue entirely. This is part of our long-standing policy of taking the high road whenever possible to ensure good relations and strong compliance. If you would like more information concerning this area of the law, please feel free to contact us at (904) 363-2769.