Convenience fees are a controversial topic in the ARM industry. And judging by the interest and inquiries from individuals in the business who attended a webinar last week on the topic, there is a lot of confusion as well.
The webinar, sponsored by BillingTree, aimed to provide an overview of how convenience fees work, and the circumstances under which they can, and can not, be charged.
The speakers for the event were Rozanne Andersen, the chief compliance officer at Ontario Systems, and Claudia Callaway and Christina Grigorian, both partners at the law firm of Katten Muchin & Rosenman.
A copy of the recording of the webinar can be accessed here.
Along with having to comply with federal rules, like the Fair Debt Collection Practices Act, when it comes to charging convenience fees, companies in the ARM industry must also comply with state laws, as well as rules by the card association companies, like Visa and MasterCard, and legal precedents, which have established what can and can not be done.
For example, association rules generally dictate that a convenience fee must be disclosed prior to the completion of a transaction and the consumer must have the right to cancel the transaction without incurring any penalty. As well, the fee must be part of the merchant providing a bona fide “convenience.”
There are currently 10 states that ban the practice of charging surcharge fees on credit card transactions. But those 10 states, which include California, Florida, and New York, account for 54% of the total population of the U.S., Girgorian noted during the event.
Making matters even more complicated are a new set of rules that are going into effect next month which will expand the scope of consumers who can make payments on debt using a debit or prepaid card.
Andersen laid out five questions that ARM industry companies should ask, and answer, prior to making a decision about charging a convenience fee. Those questions are:
- Is the fee authorized by the contract between the creditor and the consumer?
- Is the fee prohibited by state law?
- Is the fee permitted by state law?
- Have you provided the consumer with a free option?
- To which payment does the fee apply?
Regardless of the payment method being used, whether in the talk-off between a collection agent and an individual, or when accepting payments through a website, or using an Interactive Voice Response (IVR) product, there should be language disclosing the availability of a free option for that individual to make a payment, Andersen said.
Convenience fees have come under the scrutiny of the Consumer Financial Protection Bureau on several occasions, Andersen noted. The CFPB has contended that convenience fees may constitute an unfair, deceptive, or abusive act or practice (UDAAP) in a number of circumstances and has warned debt collectors that the FDCPA prohibits them 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.