Convenience fees face increased scrutiny after Fourth Circuit rules online payments could violate consumer protection laws

The Fourth Circuit recently found that charging convenience fees can violate consumer protection laws, including the Fair Debt Collection Practices Act.

Convenience fees are typically charged by financial institutions in exchange for a consumer’s ability to easily make payments online or over the phone instead of making payments by mail.

The deal is Alexander v. Carrington Mortgage Services, LLCand the Fourth Circuit’s three-judge panel unanimously ruled that a mortgage agent violated Maryland’s consumer protection law when he charged consumers a $5 fee to make mortgage payments online or by telephone.

Above all, Carrington does not apply only to mortgage managers – instead, because the Court applied the broad definition of a “collector” in the Maryland Consumer Debt Collection Act, the decision impacts everyone who tries to collect a debt resulting from a consumer transaction.

The case is particularly notable because Maryland’s consumer protection law incorporates the substantive provisions of the FDCPA, including the FDCPA’s prohibition against charging consumers amounts not expressly authorized by agreement or authorized by law. .

In Maryland, charging a convenience fee may not be expressly prohibited, but neither is it explicitly permitted. Thus, the Fourth Circuit determined that the mortgage servicer violated Maryland law by engaging in conduct that violated the FDCPA when it charged the convenience fee, as the fee was neither authorized by agreement nor expressly authorized by law. According to the Court, to hold otherwise would defeat the purposes of the FDCPA and would run counter to statutory interpretation.

The Carrington The ruling was issued just weeks before the Consumer Financial Protection Bureau issued a “request for information regarding fees charged by providers of consumer financial products or services.” According to the CFPB, convenience fees “drain tens of billions of dollars a year from Americans’ budgets.” And as demonstrated by the decision of Carringtonthe CFPB is not alone in targeting convenience fees and the trend shows no signs of faltering.

As online payment systems quickly replace outdated mail payment methods, convenience fees are likely to come under scrutiny in the future. This is especially true when, as the Carrington The court specifically notes that convenience fees generally exceed the actual costs incurred by a financial institution when processing online payments, and paperless payment options are generally more beneficial to the financial institution compared to traditional payment methods. .

The light at Carrington and given the CFPB’s renewed emphasis on convenience fees, financial institutions should assess their policies on the imposition of such fees.

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