The Consumer Financial Protection Bureau (“CFPB” or “Bureau”) recently issued a Compliance Bulletin (“Bulletin”) regarding the assessment of fees when a consumer pays a bill by-phone services (pay-by-phone fees), invoking the Dodd-Frank Act’s prohibition on unfair, deceptive, or abusive acts or practices (“UDAAPs”) with respect to phone pay fees. The Compliance Bulletin sets forth suggestions related to how consumers should be offered expedited or over-the-phone payment services, including by credit card, debit card, or electronic check.
Discussion of CFPB Guidance
Under the Dodd-Frank Act, all covered persons or service providers are required to refrain from committing UDAAPs. Covered persons are essentially any person or business that offers or provides a consumer financial product or service and their service providers (those who offer credit, collect debt, process payments, report or collect credit information, offer debt relief, credit repair, or credit counseling).
An act or practice is considered to be 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.[i] An act or practice is deceptive when (i) it 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.[ii] Ironically, the CFPB referenced pay-by-phone fees as potentially being abusive in a footnote.[iii] While footnotes are often overlooked, this footnote indicates that at least some Bureau staff wanted to deem the practices detailed below as abusive, because more likely than not, consumers are not being defaulted into the least expensive or a free payment option. The Bureau, however, will continue to evaluate whether phone pay fees are abusive.
The Bureau identifies specific phone payment practices that may constitute UDAAPs or contribute to the risk of committing UDAAPs. Such practices may include:
- Failing to disclose the prices of all available pay-by-phone fees when different pay-by-phone options carry materially different fees. Charges for pay-by-phone fees vary based upon the method of payment chosen by the consumer. Thus, it is often difficult to appropriately advise the consumer without overwhelming them with non-relevant information—especially prior to knowing how the consumer would like to make their payment. Accordingly, the CFPB states that use of generic disclosure documentation or merely disclosing “transaction fees may apply,” but not disclosing the exact amount of every relevant fee for each payment method may pose a risk of being deemed to be an unfair practice for pushing consumers into materially higher-cost options.
- Misrepresenting the available payments options or that a fee is required to pay-by-phone. If there is a free or low-cost payment option and lowest cost (free) option is not set as the default payment option, the CFPB may view this practice to be misleading or deceptive.
- Failing to disclose that a phone pay fee would be added to a consumer’s payment, thus creating the misimpression that there was no service fee. It may be a deceptive act or practice when an entity fails to disclose that the pay-by-phone fee will be charged in addition to a consumer’s otherwise applicable payment amount. The CFPB believes that this may leave the misimpression that there is no service fee, when in fact the entity does charge the consumer a fee.
- Lack of employee monitoring or service provider oversight may lead to misrepresentations or failure to disclose available options and fees. Many entities have policies and procedures in place requiring phone representatives to disclose all available pay-by-phone options and fees to consumers, including requiring the use of detailed phone scripts. However, deviations from such call scripts may potentially cause phone representatives to misrepresent the available phone payment options and fees, resulting in the consumer being charged a higher fee than otherwise would have been applicable.
In addition, the Compliance Guide notes that under the Fair Debt Collection Practices Act (“FDCPA”), a person defined as a “debt collector” is prohibited from charging fees, including pay-by-phone fees, in certain instances. This could result in violations of the FDCPA if a debt collector charges fees for taking payments over the phone when such fees are not expressly authorized by the agreement creating the debt or otherwise permitted by law.
The Compliance Guide suggests that entities review their practices on charging phone pay fees for potential risks of committing UDAAPs or violating the FDCPA. This may include the following:
- Review applicable state and federal laws, including the FDCPA, to confirm whether the entity is permitted to charge pay-by-phone fees;
- Review underlying debt agreements to determine whether fees are authorized by such agreement;
- Review internal and service providers’ policies and procedures on pay-by-phone fees, including call scripts and employee training materials, and revise as appropriate;
- Review whether detailed and comprehensive information on pay-by-phone fees is stated in account disclosures, loan agreements, periodic statements, payment coupon books, on the company’s website, over the phone, or through other mechanisms;
- Incorporate pay-by-phone issues in regular monitoring or audits of calls with consumers;
- Review consumer complaints regarding pay-by-phone fees;
- Regularly review service providers’ practices regarding pay-by-phone pay fees;
- Review or create a corrective action program to address any violations identified and to remediate any potential consumer harm where appropriate; and
- Review employee and service provider production incentive programs to see if there are any incentives to steer borrowers to certain payment types or to avoid disclosures.
[i] DFA §§ 1031, 1036, 12 U.S.C. §§ 5531, 5536.
[ii] See CFPB Exam Manual at UDAAP 5.
[iii] Id.; see also DFA §§ 1031, 12 U.S.C. § 5531(d) (An act or practice is abusive when it materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service, or takes unreasonable advantage of (i) a consumer’s lack of understanding of the material risks, costs, or conditions of the product or service; (ii) a consumer’s inability to protect his or her interest in selecting or using a consumer financial product or service; or (iii) a consumer’s reasonable reliance on a covered person to act in his or her interests.)