Written by: André B. Cotton, Regulatory Compliance Counsel
Recently, the CFPB issued a Compliance Bulletin that provides guidance to credit unions regarding fee assessments for pay-by-phone services and the potential for unfair, deceptive, or abusive acts or practices (UDAAPs) when assessing phone pay fees. The Bulletin also provides guidance to debt collectors about compliance with the Fair Debt Collection Practices Act (FDCPA) when assessing phone pay fees.
The CFPB's Compliance Bulletin summarizes the current law, highlighting relevant examples of conduct observed during supervisory examinations and enforcement investigations that may violate Federal consumer financial law. Today's post will provide an overview of some of the CFPB's fact specific examples.
Background
The CFPB has observed across various consumer financial products and services, many financial institutions provide consumers with multiple payment options. For example, a credit union may provide its members the option of making payments over the phone by using an automated system or speaking with a live representative. A credit union may also provide members the option to make phone payments by using a debit card, electronic check, or to have their payment expedited. A number of financial institutions also use third-party service providers to handle and process the payments.
Examples of Conduct that May Violate or Risk Violating the Prohibition on UDAAPs
Pursuant to the Dodd-Frank Act, "an act or practice is unfair when (i) it causes or is likely to cause substantial injury to consumers; (ii) the injury is not reasonably avoidable by consumers; and (iii) the injury is not outweighed by countervailing benefits to consumers or competition." Furthermore, an "act or practice is deceptive when (i) the act or practice misleads or is likely to mislead the consumer; (ii) the consumer's interpretation is reasonable under the circumstances; and (iii) the misleading act or practice is material" The CFPB notes that UDAAP violations depends on the facts and circumstances. Below, I have included a non-exhaustive list of examples of conduct related to phone pay fees.
Failing to Disclose the Prices of All Available Phone Pay Fees When Different Phone Pay Options Carry Materially Different Fees
For example, the CFPB has noted that many financial institutions charge different phone pay fees depending on the payment method. Some financial institutions send periodic billing statements or other documentation that discloses that "transaction fee may apply" to various payment methods, but the statements do not disclose the relevant fees to be charged for those methods. In some other instances, a financial institution may solely depend on phone representatives to disclose the relevant fees before the charge is imposed. However, in some cases, the phone representatives only reveal the higher-cost options. Consequently, this conduct poses a risk of an unfair practice.
Misrepresenting the Available Payments Options or that a Fee is Required to Pay by Phone
In an enforcement action, the CFPB alleges that a mortgage servicer engaged in a deceptive practice by misrepresenting to consumers, both expressly and by implication, that a particular pay-by-phone option was the only available payment method, or that consumers must use the particular pay-by-phone option in order to avoid negative consequences, including incurring a late fee or even facing foreclosure. To the contrary, in this case, the servicer accepted several payment options free of charge.
Failing to Disclose that a Phone Pay Fee would be Added to a Consumer's Payment could Create the Misimpression that there was No Service Fee
For example, a member owes a payment of $300. The member calls and tells the credit union's customer service representative that he will pay by phone. The member customer service representative confirms that the member borrower authorizes a payment of $300. In fact, the member's checking account is debited $315, which is the $300 for the otherwise applicable payment amount and $15 for a pay-by-phone fee.
Lack of Employee Monitoring or Service Provider Oversight may lead to Misrepresentations or Failure to Disclose Available Options and Fees
A number of financial institutions have policies and procedures that direct live representatives to disclose all available phone pay options and fees. Many entities even provide representatives with detailed phone scripts. Unfortunately, when live representatives veer off-script, they potentially misrepresent available phone payment options and fees. This may result in members being charged higher fees than otherwise would have been applicable. The CFPB recommends adequate monitoring can reduce the risk of misrepresentations.
Examples of Conduct that May Violate or Risk Violating the FDCPA
Pursuant to Section 808(1) of the FDCPA, "a debt collector may not collect 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."
CFPB Supervision has noted that one or more mortgage services meet FDCPA definition of "debt collector". Thus, when these mortgage servicers charged fees for taking mortgage payments over the phone, they violated the FDCPA because the mortgage instruments did not expressly authorize collecting such fees. As a result, the CFPB instructed the mortgage servicers in question to review mortgage notes and applicable state law, and to only collect pay-by-phone fees where expressly authorized by contract or state law.
The Bureau's Expectations
The CFPB expects entities to review their practices on charging phone pay fees for potential risks of committing UDAAPs or violating the FDCPA. Credit Unions may consider the following suggestions in assessing whether their practices present a risk of constituting a UDAAP or FDCPA violation:
- Review applicable law (state, federal, FDCPA) to confirm whether the credit union is permitted to charge phone pay fees
- Review debt agreements to determine whether such fees are authorized by contract
- Review internal and third-party vendor policies and procedures on phone pay fees
- Review whether information on phone pay fees is shared with the membership (i.e. account disclosure, periodic statements, payment coupon books, on the company's website, over the phone, etc.)
- Incorporate pay-by-phone issues in regular monitoring or audits
- Review member complaints regarding phone pay fees
- Perform regular reviews of third-party provider practices
- Ensure that the credit union has a corrective action program to address any identified violations and reimburse members when appropriate
The CFPB will continue to closely review the practices of entities charging phone pay fees for potential UDAAPs and FDCPA violations. The CFPB will use all appropriate tools to assess whether supervisory, enforcement, or other actions may be necessary.
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Last week, I attended NAFCU Risk Seminar in Denver, Co. I learned a lot, and I am now André B. Cotten, Esq., NCCO, NCRM! Here's a photo from my hike at the Red Rocks Amphitheatre:
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