Sharing of Convenience Fees Spells Trouble Under the FDCPA

A recent opinion from a district court in California serves as a reminder to creditors and debt collectors of the limited circumstances upon which convenience fees can be collected.  In Lindblom v. Santander Consumer USA, 2018 U.S. Dist. LEXIS 993313267 (E.D. Cal. Jan. 22, 2018), the consumer was offered a variety of methods for payment.  While some of the options were free, the consumer opted to make several payments using a “speedpay” service through Western Union.  Use of the service cost the consumer $10.95 per use.  Through a fee sharing agreement, Santander and Western Union split the convenience fee. The consumer brought a putative class action asserting that Santander’s collection and retention of the Speedpay fees violated section 1692f(1) of the FDCPA.   Santander filed a motion for summary judgment asserting that plaintiffs expressly authorized the Speedpay fees when they knowingly agreed to use the Speedpay service.

Section 1692f(1) prohibits the collection of “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.”  Relying on provisions of state law which allow a written contract to be modified by an oral agreement, Santander contended that each time the consumer used Speedpay, she and Santander modified the underlying contract to allow that fee.  The court was not persuaded.  Because the parties’ underlying contract did not address the Speedpay fees in any manner, the court concluded that there could be no oral modification.  “An ‘oral modification’ presupposes an existing term or provision in writing.” Lindblom at *17.  Further, because the plaintiff was not informed that Santander was keeping a portion of the Speedpay fee, the plaintiff could not have knowingly agreed to the modification.  The court was further persuaded by the fact that Section 1692f(1)’s purpose is to preclude debt collectors from implementing a method to increase their compensation through the collection of service charges in addition to the underlying debt.

Left unanswered by the court is the question of whether a different result would have been reached had the fee represented the actual cost of the transaction and not been shared with the creditor.  Those facts would likely present a closer question, but creditors and debt collectors should use caution when determining whether to pass along convenience fees to consumers as a number of jurisdictions and the CFPB have raised concerns with the same.