I. INTRODUCTION
The Consumer Financial Protection Bureau (CFPB) issued a public bulletin intended to provide guidance to covered persons and service providers who take payments from consumers using pay-by-phone services and charge the consumer a fee for such a service. The purpose of the bulletin is to highlight and re-emphasize the potential for violations of the Dodd-Frank Act’s prohibitions on engaging in unfair, deceptive, or abusive acts or practices (UDAAP) and violations of the Fair Debt Collection Practices Act (FDCPA) when assessing phone pay fees.
II. PHONE PAY FEES
The bulletin specifically identifies as unfair the practice of not specifically disclosing the amount of various transaction fees associated with different payment methods on written materials, and then failing to disclose all of the consumer’s payment method options, and the fees associated with each available payment method, when the consumer contacts the entity by telephone. The bulletin also identifies a number of practices that could be deceptive. For example, it could be deceptive for an entity to misrepresent the availability of no-fee options or to misrepresent the purpose of a payment option that will result in a fee. It could also be a deceptive act or practice to fail to disclose that a fee will be charged when using a pay-by-phone service, or the amount of any such fees that will be assessed. The bulletin also notes that the collection of phone pay fees could constitute a violation of the FDCPA.
III. EXAMPLES OF CONDUCT THAT MAY VIOLATE OR RISK VIOLATING THE PROHIBITION ON UDAAPs
Under the Dodd-Frank Act, all covered persons or service providers are legally required to refrain from committing unfair, deceptive, or abusive acts or practices in violation of the 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 to competition. 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.
Depending on the facts and circumstances, the following non-exhaustive list of examples of conduct related to phone pay fees may constitute UDAAPs or contribute to the risk of committing UDAAPs.
A. Failing to disclose the prices of all available phone pay fees when different phone pay options carry materially different fees
Many entities charge different phone pay fees depending on the payment method used by the consumer. Prior to charging such fees, entities sometimes send periodic billing statements or other documentation that discloses that “transaction fees may apply” to various payment methods, but that do not disclose the relevant fees to be charged for those methods. In some of these instances, entities may depend solely on phone representatives to disclose the relevant fees to consumers before the charge is imposed. Yet, the phone representatives may potentially only reveal the higher-cost options or fail to inform consumers of the material price difference between available options. This conduct poses a risk of an unfair practice: it may cause substantial harm to consumers, who are pushed into materially higher-cost options; this harm may not be reasonably avoidable if consumers are unable to select lower-cost alternatives because they do not have the necessary information to know that such options are available; and countervailing benefits to consumers or competition may not warrant the entity’s failure to disclose the materially different prices of the available phone pay options to its consumers.
B. Misrepresenting the available payments options or that a fee is required to pay by phone
Entities sometimes charge a fee for expedited phone payments, but also offer consumers no-fee phone pay options that post after a processing delay. Some entities in turn offer their fee-based expedited payment option as their default pay-by-phone option. In such cases, disclosures in connection with the default option may risk misleading consumers into believing that a fee is required under all circumstances to make any payment by phone.
C. 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
An entity may risk engaging in a deceptive act or practice when it fails to disclose that a phone pay fee will be charged in addition to a consumer’s otherwise applicable payment amount and indicates to that consumer that only the otherwise applicable payment amount will be charged. This conduct may leave the misimpression that there is no service fee, when in fact the entity does charge the consumer a fee. This potential misrepresentation may be material to consumers because a consumer who knows about the fee may inquire whether there is an alternative payment option with a lower fee or may choose a payment method that requires no fee.
D. Lack of employee monitoring or service provider oversight may lead to misrepresentations or failure to disclose available options and fees
A number of entities have policies and procedures in place requiring phone representatives to disclose all available phone pay options and fees to consumers, including requiring the use of detailed phone scripts. But deviations from call scripts may potentially cause phone representatives to misrepresent the available phone payment options and fees resulting in a consumer being charged a higher fee than otherwise would have been applicable. Entities can reduce the risk of misrepresentations through adequate monitoring.
IV. EXAMPLES OF CONDUCT THAT MAY VIOLATE OR RISK VIOLATING THE FDCPA
Under the FDCPA, a person defined as a “debt collector” is prohibited from charging fees, including phone pay fees, in certain instances. Under 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. Supervision has found that one or more mortgage servicers that met the definition of “debt collector” under the FDCPA violated the Act when they charged fees for taking mortgage payments over the phone to borrowers whose mortgage instruments did not expressly authorize collecting such fees and who reside in states where applicable law does not expressly permit collecting such fees.
V. THE CFPB’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. While the CFPB does not mandate any particular method for informing consumers about the available phone pay options and fees, entities should consider the following suggestions in assessing whether their practices may present a risk of constituting a UDAAP or FDCPA violation:
Entities should also consider reviewing employee and service provider production incentive programs to see if there are incentives to steer borrowers to certain payment types or to avoid disclosures.
In the context of phone pay fees, production incentives may enhance the potential risk of entities engaging in UDAAPs. Production incentives that reward employees or service providers based on consumers using a higher-cost phone pay option may potentially lead entities to steer consumers to a higher-cost option despite the availability of lower-cost alternatives. Similarly, incentive programs that reward representatives who complete a large number of daily calls may potentially cause these representatives to spend less time discussing the available phone pay options and fees resulting in the consumer paying a higher fee because the consumer is not informed of the lower-cost alternatives. Entities should review these programs accordingly.
The guidance can be viewed at the following link or by going to the CFPB website (https://www.consumerfinance.gov/) and searching for “Bulletin 2017-01”, (https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/201707_cfpb_compliance-bulletin-phone-pay-fee.pdf) .