The Consumer Financial Protection Bureau’s Advisory Opinion explains what third parties can and cannot collect

Consumers have rights when it comes to their debt, including the types of fees they must pay. But there are also laws —governed by the Fair Debt Collection Practices Act — about the types of fees that third parties can and can’t collect.

However, since laws can often be misunderstood, the Consumer Financial Protection Bureau released an Advisory Opinion to help clarify the rules around collection fees. Let’s look at what it said and what it means to consumers and third-party debt collectors.

What the FDCPA actually says

On June 29, 2022, the Consumer Financial Protection Bureau (CFPB) published an Advisory Opinion to remind third-party debt collectors of the prohibitions in the Fair Debt Collection Practices Act (FDCPA) against charging consumers any fee not expressly permitted by law or incidental to the principal obligation. The Advisory Opinion took effect on July 5, 2022.

According to USC 1692 f (1), the unfair practices section of the FDCPA:

“A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section: (1) 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.”

4 common misunderstandings about fees

The FDCPA’s prohibition against charging fees not permitted by law or agreed to by the consumer in the underlying credit agreement should not come as news to anyone collecting in the third-party space. It is a basic tenant of the FDCPA and many state consumer protection laws. Yet over the years, debt collectors and their clients have misunderstood the application of Section 1692f (1). The Advisory Opinion addresses these common misunderstandings.

• Silence does not mean permitted: Some have assumed third-party debt collectors are permitted by law to charge consumers a fee in connection with a payment transaction so long as the state law does not expressly prohibit debt collectors from charging such a fee. This is not true.
• Separate consumer fee agreement with the debt collector is not OK: Other third-party debt collectors have assumed that if they reach a separate verbal or written agreement with the consumer to charge the fee, such as a convenience fee, they are permitted to do so. This is also false.
• State law fee prohibitions apply to debt collectors not processors: Many have misconstrued state laws that prohibit third-party debt collectors from charging consumers a payment fee or convenience fee as a ban prohibiting payment processors from charging consumers a fee in connection with an electronic payment. This is also not true.
• Card brand rules do not override the FDCPA, Reg F, or state law: Still others have mistakenly assumed that since the card brand rules permit merchants to charge convenience fees, surcharges, and service fees, debt collectors, in their capacity as authorized card brand merchants, can charge such fees. Again, this is not true.

Processor-charged fees are not illegal

While the CFPB’s Advisory Opinion makes it clear that debt collectors cannot legally charge or collect pay-to-pay or “convenience” fees from consumers directly, it does not prohibit processors from charging fees in connection with payments or for other use cases.

What the Advisory Opinion also makes clear is that debt collectors cannot effectively collect fees by setting up a kickback arrangement with processors or any other arrangement that results in a financial benefit to the debt collector. Paragraph 3 and the corresponding Footnote 34 support the CFPB’s position that debt collectors cannot do indirectly what is otherwise prohibited directly.

Paragraph 3

Payment Processors. Debt collectors may violate FDCPA section 808(1) and Regulation F, 12 CFR 1006.22(b), when using payment processors who charge consumers pay-to-pay fees. For instance, a debt collector collects an amount under section 808(1) at a minimum when a third-party payment processor collects a pay-to-pay fee from a consumer and remits to the debt collector any amount in connection with that fee, whether in installments or in a lump sum.

Footnote 34

See, e.g., Ballentine’s Law Dictionary (3d ed. 2010) (defining “collect” as “to receive payment”); cf. 15 U.S.C. 1692a(6) (defining debt collector to include persons who “directly or indirectly” collect debts).

This means processor-charged fees that are appropriately disclosed and do not result in remuneration to the debt collector fall outside the scope of the Advisory Opinion! It is also clear that unless the debt collector “receives payment” from the processor in connection with the processor’s charging of the fee — either directly or indirectly — the law will not be construed to mean the debt collector is charging the fee.

To state it another way, so long as the debt collector does not receive payment in connection with the processor-charged fee, directly or indirectly, the debt collector is complying with the letter of the Advisory Opinion.

Protection against liability

Debt collectors that rely on and strictly comply with a CFPB Advisory Opinion are afforded an absolute defense to liability under the FDCPA for claims arising therefrom. Section 15 U.S. Code § 1692k (e) – Civil liability (e)Advisory opinions of Bureau states:

No provision of this section imposing any liability shall apply to any act done or omitted in good faith in conformity with any advisory opinion of the Bureau, notwithstanding that after such act or omission has occurred, such opinion is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.

 Finding the right partner

Countless processors serving the third-party debt collection industry profess to sell the holy grail solution to the processor-charged fee dilemma. However, only Finvi Payments offers a solution that not only mirrors the requirements of the CFPB’s Pay-to-Pay Advisory Opinion, but also establishes a direct relationship between the consumer and the processor. It is called the Technology Usage Fee (TUF) Program.

Third-party debt collectors that use Finvi Payments’ TUF Program essentially serve as a conduit. With the permission of the consumer, the third-party debt collector introduces the consumer to Finvi Payments TUF Program. Using a proprietary script, Finvi Payments offers the consumer access to technology that will allow the consumer to make an electronic payment, manage electronic statements and receipts, access documents, and set up single immediate, single future, recurring immediate, and recurring future secured payment arrangements.

The Finvi Payments TUF Program provides no remuneration to the debt collector or kick back. Nor does it provide a discount on processing fees. This is because the debt collector does not use Finvi Payments to process any type of electronic payment.

Click here for more information about Finvi Payments TUF Program.

This is the second blog post in a three-part series on Payments Innovation. You can read the first blog post here. And keep your eyes out for the third blog post.

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