Consumer Bureau Takes Aim at Debt Collection "Junk Fees"

Financial regulator outlines illegal fees, takes action to prevent unlawful debt collection

The Consumer Financial Protection Bureau (CFPB) recently issued an advisory opinion noting that the so-called "convenience fees" often charged by debt collectors to facilitate debt repayment are prohibited by federal law.

In a statement, the CFPB noted that the fees are illegal and outlined what fees a debt collector may lawfully collect. Consumers should be aware of these tactics which seek to enrich debt collectors and have no bearing on actual debt repayment.

“Federal law generally forbids debt collectors from imposing extra fees not authorized by the original loan,” said CFPB Director Rohit Chopra. “Today’s advisory opinion shows that these fees are often illegal, and provides a roadmap on the fees that a debt collector can lawfully collect.”

The advisory opinion spells out the way some debt collectors use what they term "convenience fees" in order to further profit from consumers seeking to repay a debt.

While most debt collectors allow consumers to make payments by phone or online without charging additional fees, some debt collectors impose additional fees for those types of payments. These debt collectors do so even if it is cheaper and less time-consuming for them to process phone and online payments than it is to process the paper-check payments delivered by mail or in person that debt collectors typically process for free. These types of fees are often illegal, and today’s advisory opinion and accompanying analysis seek to stop these violations of law and assist consumers who are seeking to hold debt collectors accountable for illegal practices.

The advisory opinion is a warning to debt collectors and advises consumers of their rights. Specifically, the opinion:

• Identifies scope of illegal fees: The collection of any fee is prohibited unless the fee amount is in the consumer’s contract or affirmatively permitted by law.
• Affirms that silence in the law is not an authorization: A debt collector may only collect a fee when it is authorized by the agreement creating the debt or is “permitted by law.” Where no law expressly authorizes a fee, it is not “permitted by law,” even if no law expressly prohibits it.
• Clarifies role of payment processors: Debt collectors violate the FDCPA when using payment processors who charge unauthorized fees at a minimum if the debt collector receives a kickback from the payment processor.

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