The Fourth Circuit recently found that the imposition of convenience fees can run afoul of consumer protection statutes—including the Fair Debt Collection Practices Act.
Convenience fees are commonly charged by financial institutions in exchange for allowing a consumer to easily make payments online or via telephone as opposed to making payments by mail.
The case is Alexander v. Carrington Mortgage Services, LLC, and the three-judge panel for the Fourth Circuit unanimously held that a mortgage servicer violated Maryland’s consumer protection statute when it charged consumers a $5 fee to make mortgage payments online or by phone.
Importantly, Carrington does not solely apply to mortgage servicers—instead, because the Court applied the Maryland Consumer Debt Collection Act’s broad definition of a “collector,” the decision impacts all persons who attempt to collect a debt that arises from a consumer transaction.
The case is especially noteworthy as Maryland’s consumer protection statute incorporates the substantive provisions of the FDCPA—including the FDCPA’s prohibition on charging consumers amounts not expressly authorized by agreement or permitted by law
In Maryland, charging a convenience fee may not be expressly prohibited, but is also not explicitly permitted. Thus, the Fourth Circuit determined that the mortgage servicer ran afoul of Maryland law by engaging in conduct that violated the FDCPA when it charged the convenience fee, as the fee was neither authorized by agreement or expressly permitted by law. Per the Court, to hold otherwise would frustrate the goals of the FDCPA and run contrary to statutory interpretation.
The Carrington decision was handed down just weeks prior to the Consumer Financial Protection Bureau’s issuance of a “Request for Information Regarding Fees Imposed by Providers of Consumer Financial Products or Services.” Per the CFPB, convenience fees “drain tens of billions of dollars per year from Americans’ budgets.” And as demonstrated by the decision in Carrington, the CFPB is not alone in taking aim at convenience fees and the trend shows no signs of slowing.
Given that online payment systems are rapidly replacing outdated mail-based payment methods, convenience fees will likely face future scrutiny. This is especially true where, as the Carrington court expressly notes, convenience fees typically exceed the actual costs incurred by a financial institution when processing online payments, and paperless payment options are typically more beneficial to the financial institution compared to traditional methods of payment.
In light of Carrington and given the CFPB’s renewed focus on convenience fees, financial institutions should evaluate their policies on imposing such fees.