Collector - August 2020 - 30

CONSIDER: FEDERAL AND
STATE LAWS
Section 1692f of the FDCPA prohibits
a debt collector from collecting "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."
The FDCPA defines "debt collector"
to mean "any person who uses any
instrumentality of interstate commerce or the
mails in any business the principal purpose
of which is the collection of any debts, or
who regularly collects or attempts to collect,
directly or indirectly, debts owed or due or
asserted to be owed or due another."
Under that definition, traditional
third-party debt collectors, but not mere
payment processors, are considered "debt
collectors." However, although they are not
typically considered debt collectors under
the FDCPA, payment processors have been
charged with violating the unfair acts or
practices prong of the Consumer Financial
Protection Act for allegedly ignoring
warning signs that their clients were
violating the FDCPA.
In interpreting these provisions, several
federal courts have found that a convenience
fee for processing a debt collection payment

of a third-party debt collector does not fall
within the boundaries of the FDCPA when
no part of the convenience fee is retained
by the debt collector. The most prominent
theory in this line of cases is known as the
"pass-through" defense, where the debt
collector passes the entire convenience fee to
its payment processor, creating a third-party
charge triggered by the consumer's choice to
pay by credit card.
For example, as the district court held in
Lee v. Main Accounts, and the 6th Circuit
affirmed, a 5% charge imposed on credit card
payments did not violate the FDCPA because
the defendant debt collector would not have
received any additional compensation from
the convenience fee. Other courts have either
applied, or at least recognized, the passthrough defense.
Further, state laws in at least a dozen
states call into question whether a surcharge,
including one in the form of a convenience
fee, may be imposed on payments to
debt collectors in any case. For example,
Connecticut prohibits sellers (an undefined
term) from charging a surcharge fee on a
buyer who uses any method of payment,
including cash, check, credit card or
electronic means in "any sales transaction."
While there is room for debate whether
convenience fees are barred in Connecticut,

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30

North Carolina state law expressly provides
that it is an unfair practice for a collection
agency to "collect[] or attempt[] to collect
from the consumer all or any part of the
collection agency's fee or charge for services
rendered, collecting or attempting to collect
any interest or other charge, fee or expense
incidental to the principal debt unless legally
entitled to such fee or charge."
The North Carolina Department of
Insurance has issued a guidance document
cautioning that "all collection agencies subject
to licensure under Article 70 of Chapter 58
[of North Carolina General Laws] ensure that
that they do not demand, collect, or attempt to
collect a 'convenience fee' or other prohibited
fees from North Carolina consumers."
Simply stated, debt collectors should be
wary of charging any convenience fees to
consumers without first analyzing both
the FDCPA and state law implications of
doing so.

CONSIDER: THE CONSUMER
FINANCIAL PROTECTION BUREAU
The CFPB has sole authority to "prescribe
rules with respect to the collection of debt
by debt collectors." Through a variety of
publications discussed here, the bureau
has suggested that Section 1692f of the
FDCPA does not prohibit a payment
processor from charging a convenience
fee when processing a payment on behalf
of a debt collector so long as the fee is not
shared or split with the debt collector.
For example, in November 2013,
the CFPB issued an Advance Notice of
Proposed Rulemaking suggesting that it
intended to adopt debt collection rules
under the FDCPA. Subsequently, in July
2016, the CFPB published an outline of
the proposals under consideration. The
outline expressly stated that:
"The Bureau is considering clarifying
that incidental fees, including payment
method convenience fees, that are
collected either directly or indirectly are
permissible only if: (1) state law expressly
permits them; or (2) the consumer
expressly agreed to them in the contract
that created the underlying debt and state

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