Federal regulators weighed in on whether “convenience fees” charged
by a mortgage servicing company are unfair to consumers. The Consumer Financial
Protection Bureau (CFPB) and the Federal Trade Commission (FTC) submitted
arguments consistent with their ongoing campaign against illegal “junk fees” in
an advisory opinion followed by a recent amicus brief.
Former CFPB attorneys Mike G. Silver, partner at Husch
Blackwell, and Richard Horn, managing partner at Garris Horn LLP, explained the
strategies they believe the two parties are employing in the case of Glover
and Booze v. Ocwen Financial Corp.
The arguments on both sides hinge largely on technical
interpretations of certain language in the Federal Debt Collection Practices
Act (FDCPA) and Regulation F. Such interpretations have varied greatly among
different courts, Horn explained.
“The issue is whether mortgage servicers can charge
convenience fees for phone or web payments under the FDCPA, which has been
answered differently in different courts,” he said. “The CFPB has been on the
‘junk fee’ war path under Director [Rohit] Chopra, which is another way of
saying they’re trying to reduce or eliminate fees they dislike.”
CFPB General Counsel Seth Frotman, who is also Chopra’s
senior advisor, published a blog post asserting that the types of fees cited in
the case against Ocwen contribute to making mortgages less affordable for
average Americans.
“And costs for homeowners are driven up if companies in the
mortgage industry can pad their profits with illegal junk fees,” Frotman wrote.
“The CFPB is working to combat the proliferation of junk fees in consumer
financial markets and to ensure that mortgage companies don’t tack on unlawful
fees.”
Silver said the CFPB likely was highly strategic in focusing
on specific facts in their brief that not only support its views on the case
but also ones that align with the agency’s ongoing campaign against fees it
believes are unlawful and harmful to consumers. For example, the CFPB pointed
out the cost disparity between what borrowers paid in convenience charges for
making payments online or by phone ($7.50 to $12) and the cost to process these
payments (40 cents).
“I think the CFPB was trying to emphasize these facts at the
outset of the brief because they appear fairly favorable to the plaintiffs’
position,” Silver said. “The bureau seems to be insinuating strongly that there
was a healthy profit margin, in terms of the disparity between how much it
actually costs to process these payments and how much the fee was. And then you
have two plaintiffs who paid the fee many, many times. So, there was a fair
amount of money extracted from these particular consumers.”
One of the main questions facing the Eleventh Circuit Court
of Appeals in determining the legality of the fees at issue in this case is
whether a convenience fee is an “incidental” charge as it relates to mortgage
debt, or a fee for a separate service.
“Both the CFPB and Ocwen use different dictionary
definitions of the term to support their positions,” Horn observed. “It will be
interesting to see where the court lands, especially considering a previous
Fourth Circuit Court opinion finding that such fees were incidental. But
Ocwen helpfully points out that the term ‘incidental’ is used in TILA’s finance
charge definition in a more limited manner than the CFPB’s reading under FDCPA,
so that may persuade the court in Ocwen’s favor.”
In a 2022 advisory opinion on the case, the CFPB addressed
the question of whether a convenience fee is considered a type of “pay-to-pay”
fee, as the bureau often refers to them. The use of such fees, Silver noted, was
in the CFPB’s view considered an “unfair or unconscionable act or practice”
under Section 808 of the FDCPA.
“So the CFPB signaled its position, in 2022, that they
interpreted this provision to prohibit pay-to-pay fees, and they articulated
their reasoning in that advisory opinion,” Silver explained. “It stands out to
me that this is essentially like the CFPB is using a different tool in their
arsenal to announce an interpretive position outside of a formal rulemaking
process. So they first put out this advisory opinion and now they have made a
formal legal filing jointly with the FTC in this litigation in the Eleventh Circuit,
which essentially tracks the same position that they took on the advisory
opinion and the reasoning therein.”
Horn cited a handful of fair points made by Ocwen’s defense
team regarding its use of convenience fees to collect payments from borrowers.
“The CFPB describes these as ‘pay-to-pay fees,’ trying to
make it look like consumers always pay these convenience fees for all payments,
but Ocwen correctly points out that consumers can always pay by check for free,
and that this is an optional service that isn’t required by the note,” Horn
said. “Ocwen also correctly points out that consumers often opt for the
expedited payment methods to avoid late fees that are larger than the
convenience fees. Ocwen also points out that government agencies regularly
charge convenience fees, which is a good counterpoint to CFPB’s
characterization of these as junk fees.”
The bureau countered Ocwen’s interpretation, asserting that
the relevant FDCPA provisions cover not only the debt itself but also any
associated amounts, including fees. Additionally, the CFPB argued that these
fees are not expressly authorized by the debt agreement and are not permitted
by law unless affirmatively authorized.
“The bureau is leaning into the consumer protection aspects
of the FDCPA and the purposes of this particular provision, which again is consistent
with positioning the CFPB has taken in their abusiveness policy statement that
with debt collection, unlike certain other parties, the consumer has no choice
– consumers are not choosing their debt collector,” Silver explained.
It is possible the outcome of this case could be crucial to
the ongoing effort by the CFPB and the FTC to root out so-called “junk fees,”
and that is precisely why Horn and Silver believe both agencies will continue
to monitor its proceedings and provide commentary.