Convenience Fees: Potential for Mischief?

During the second day of insideARM’s ARM-U, a series of compliance and operational webinars for the collection industry, two attorneys, a general counsel and a consumer attorney, discussed convenience fees.

Laurie Nelson, General Counsel and Chief Compliance Officer for PaymentVision, suggested convenience fees as an effective “urgency channel”:

So in that regard, what you want to think about is urgency channels. I think that’s a great way of using convenience fees, if you were to accept payment via mail-in or face to face or even agent-assisted. However, if you wanted it to post immediately, you needed to go through web, or something of that nature, something to avoid that $25 late fee. It can be argued at that point as being a much more reasonable option, and ensure that everybody’s happy when they’re reviewing the model, meaning, when I say “everybody,” the CFPB if they were to review it.

It was at this point that Simon Sandoval-Moshenberg, a consumer attorney at the Legal Aid Justice Center in Virginia, countered. “That’s where, as a consumer attorney, I see the potential for mischief to be made. You want to avoid creating a false sense of urgency in order to create an urgency channel.”

This exchange, from opposite sides of the aisle, was very illuminating. What could appear, at first glance, to be a collection agency offering helpful options while also fulfilling their clients’ expectations can, for a consumer attorney, be an avenue to a lawsuit.

The useful distinction in this case is: is the urgency honest. Is the debt actually subject to interest or late fees? As Sandoval-Moshenberg suggested, “I’ve had a couple of cases where [an agency] put “due date x” on its collection letter. And that due date was essentially entirely made up, because this was a debt that was not increasing in amount. Essentially, the day after the due date, nothing was going to be any different from the date before the due date. So that’s the kind of thing you don’t want to do.”

To support his argument, Sandoval-Moshenberg pointed to the FDCPA’s section 1692(e): “A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.”

“Your ordinary consumer is going to prioritize debts with earlier due dates over debts with later due dates. By creating a due date, you’re kind of jumping in line over other creditors. And so if the due date is basically just false and made up out of thin air, then that’s a deceptive tactic.”

What does this mean for compliance people?

This feels like a place where Compliance and Operations will need to come to an understanding — specifically on debts that fit the description Sandoval-Moshenberg lays out: debts that actually/technically aren’t affected by a due date. Operations may make an argument that a due date is an effective “urgency channel” for a debt; however, Compliance will need to review letters of those type to make sure they’re not inadvertently confusing a consumer, ultimately resulting in a UDAAP (Undair, Deceptive, and Abusive Act or Practice) which can cost an agency plenty in court fees and judgments.

Letter reviews should be a regular part of any company’s compliance process — for everything from font size, to what’s visible in an envelope, to, as was pointed out in this session, what “urgency channel” language is being used, and how, and if it is actually appropriate in the given situation.