The Consumer Financial Protection Bureau (CFPB) on Wednesday took aim at debt collectors as part of its crusade against what it considers “junk fees” imposed illegally on unsuspecting consumers.

Debt collectors who charge consumers to make a payment in a particular way, such as online or over the phone, are often doing so illegally, according to an advisory opinion issued by the bureau Wednesday. The collectors may refer to the fees as “convenience fees,” but the agency called them “pay-to-pay” fees and said they are prohibited under the Fair Debt Collection Practices Act.

“Federal law generally forbids debt collectors from imposing extra fees not authorized by the original loan,” CFPB Director Rohit Chopra said in a June 29 press release announcing the opinion. “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 latest CFPB move singling out fees charged by debt collectors follows on a campaign the agency began in January to root out junk fees piling up for consumers.

The bureau, which has also been critical of how debt collectors treat consumers with medical debt, said it issued the opinion so that debt collectors who don’t charge the fees won’t be at a disadvantage against their competitors who do. The agency noted that “most” debt collectors don’t impose such fees.

The agency pointed out that the collectors who are charging the fees do so even when it’s cheaper and less time-consuming for them to accept payments over the phone or online, as opposed to processing paper-check payments.

ACA International, a debt collections trade group representing more than 2,000 members, accused the CFPB and its high-profile director Chopra of treating it unfairly by criticizing it in public before it could respond.

“Unfortunately the (unelected) CFPB director, acting unilaterally and contrary to existing precedent, simply decided that convenience fees are somehow ‘junk,’” Leah Dempsey, an attorney speaking on behalf of ACA International, said in a press release. “It is very troubling that the CFPB has issued an advisory opinion, without first engaging in a transparent and deliberative process with all stakeholders to understand why such fees make sense.”

Consumers will wind up footing the bill if businesses can't recoup the costs while collecting past-due accounts, she said.

ACA International CEO Scott Purcell argues that credit card transaction fees have “become a way of life” that allow consumers to “conveniently and almost effortlessly” pay their bills and potentially earn rewards. 

“The ‘old school’ check, envelope and stamp method also has a cost associated with it,” he said in a press release. “Judges interpreting the law in this area have outlined what it takes to have a compliant system for payment processing and the fees associated with it.”

In March, the CFPB criticized the industry’s handling of the $88 billion in medical debt Americans owe. It raised concerns about inaccurate medical debt data on credit reports.

At the time, the ACA rejected the CFPB’s findings as “outdated information, anecdotes, and unquantifiable research that is not peer reviewed.”

Last week, the CFPB announced that it had begun a formal review of the credit card companies’ penalty policies which the bureau estimates cost consumers $12 billion annually. 

The CFPB review of credit card late fees and late payments is assessing whether those fees are “reasonable and proportional,” according to the Bureau. It also published a notice of proposed rulemaking to help determine whether changes to regulations are necessary. Earlier this year, the bureau asked for information from the public about the impact of “junk fees” on their lives.

About 175 million Americans have at least one credit card, and late fee revenue that flows from the cards comes disproportionately from consumers in low-income neighborhoods, according to the CFPB. Banks that issue the cards have rejected the CFPB's criticisms and deny any wrongdoing.

Some business groups say they are fed up with the CFPB’s tack under Chopra. The U.S. Chamber of Commerce this week announced plans to fight “Chopra’s ideologically driven agenda to radically change the nature of America’s financial services industry.” The Chamber plans to let its voice be heard through a six-figure digital ad campaign, it said in a June 28 press release.

By Jonathan Berr on June 30, 2022
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