Pay to Pay: Is it Allowed?
Hello all! My name is Kelsey Nelson and I began working as Federal Regulatory Compliance Counsel for America’s Credit Unions just before the new year. I work remotely from Michigan and am excited to write my first blog!
There may be some confusion around whether credit unions may charge a fee for accepting mortgage payments paid over the phone. Unlike with credit cards, Regulation Z does not contain a prohibition on charging a fee to make a payment for mortgage loans. However, the CFPB has previously published a compliance bulletin on pay by phone fees and stated that some pay by phone fees may violate the prohibition on UDAAPs. Pursuant to the Dodd-Frank 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 competition." Furthermore, 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". The CFPB notes that UDAAP violations depend on the facts and circumstances.
Here are some examples of conduct provided by the bulletin that might be a UDAAP violation:
• Failing to disclose the prices of all available phone pay fees when different phone pay options carry materially different fees
• Misrepresenting the available payments options or that a fee is required to pay by phone
• 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
• Lack of employee monitoring or service provider oversight may lead to misrepresentations or failure to disclose available options and fees
The FDCPA, or Regulation F, also addresses this issue as it relates to the collection of debt, stating:
“A debt collector must not collect any amount unless such amount is expressly authorized by the agreement creating the debt or permitted by law. For purposes of this paragraph, the term “any amount” includes any interest, fee, charge, or expense incidental to the principal obligation.”
If a credit union is considered a debt collector, as defined by section 1006.2(i), the credit union must expressly authorize collecting such fees via the mortgage instrument. However, you may want to note that the term debt collector, under the FDCPA, does not include:
“any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity
(i) is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement;
(ii) concerns a debt which was originated by such person…” (Emphasis added.)
Credit Unions may want to review the FDCPA, as there are instances where a credit union may be considered a debt collector. Such as if “any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts.” Further, there have been court cases regarding loan servicers being subject to the FDCPA in certain circumstances.
The CFPB expects credit unions to review their practices on charging telephone pay fees for possible risks of committing UDAAPs or violating the FDCPA. So, take a look at your loan agreements and see if they speak to payment methods. What practices do you have in place today and do these practices put your credit union at risk?
If you have any questions concerning this topic, please contact the America’s Credit Union’s Compliance team at compliance@americascreditunions.org.
P.S. The Government Accountability Office is hosting virtual cannabis banking focus groups and is recruiting credit unions to participate. Financial institutions that currently do and do not provide cannabis banking services are needed for the study, which is investigating how cannabis-related businesses and their employees access financial services. You can learn more about the focus groups here; interested participants can sign up using this form by Feb. 14.
