[Federal Register Volume 82, Number 147 (Wednesday, August 2, 2017)]
[Notices]
[Pages 35936-35938]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-16188]


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BUREAU OF CONSUMER FINANCIAL PROTECTION


Compliance Bulletin 2017-01: Phone Pay Fees

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Compliance bulletin.

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SUMMARY: The Consumer Financial Protection Bureau (CFPB or Bureau) 
issues this Compliance Bulletin to provide guidance to covered persons 
and service providers regarding fee assessments for pay-by-phone 
services (phone pay fees) and the potential for violations of sections 
1031 and 1036 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act's (Dodd-Frank Act) prohibition on engaging in unfair, 
deceptive, or abusive acts or practices (collectively, UDAAPs) when 
assessing phone pay fees. This Bulletin also provides guidance to debt 
collectors about compliance with the Fair Debt Collection Practices Act 
(FDCPA) when assessing phone pay fees.
    This Bulletin summarizes the current law, highlighting relevant 
examples of conduct observed during supervisory examinations and 
enforcement investigations that may violate Federal consumer financial 
law. Whether conduct similar to the conduct described in this Bulletin 
violates these laws may depend on additional facts and analysis. The 
Bureau will closely review conduct related to phone pay fees for 
potential violations of Federal consumer financial laws.

DATES: The Bureau released this Compliance Bulletin on its Web site on 
July 27, 2017.

FOR FURTHER INFORMATION CONTACT: Chantal Hernandez, Attorney-Advisor, 
Office of Supervision Policy, 1700 G Street NW., 20552, (202) 435-7084.

SUPPLEMENTARY INFORMATION:

[1]. Compliance Bulletin

    Across various consumer financial products and services, many 
entities provide consumers multiple payment options. For instance, many 
provide consumers the option of making payments over the phone by using 
an automated system or speaking with a live representative. Many 
entities also provide consumers the option to make phone payments by 
using a credit card, debit card, or electronic check, or to have their 
payment expedited. A number of entities also use third-party service 
providers to handle and process the payments. State and Federal laws 
may restrict fees related to phone payments.\1\ Entities are advised to 
review applicable laws to determine whether they may charge phone pay 
fees. In the course of its Supervision and Enforcement activities, the 
Bureau has identified conduct that may violate or risks violating 
Federal consumer financial laws relating to phone pay fee practices.
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    \1\ For example, as implemented by Regulation Z, a Credit CARD 
Act amendment to the Truth In Lending Act provides that for credit 
card accounts under an open-end consumer credit plan, a creditor 
(including a third party that collects, receives, or processes 
payments on behalf of a creditor) may not impose a separate fee to 
allow consumers to make a payment by any method (including telephone 
payments) unless the payment method involves an expedited service by 
a service representative of the creditor. See 15 U.S.C. 1637(l); 12 
CFR 1026.10(e).
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Report of Supervisory or Enforcement Findings

Examples of Conduct That May Violate or Risk Violating the Prohibition 
on UDAAPs
    Under the Dodd-Frank Act, all covered persons or service providers 
are legally required to refrain from committing unfair, deceptive, or 
abusive acts or practices in violation of the 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 to competition.\2\ 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.\3\
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    \2\ Dodd-Frank Act Sec. Sec.  1031, 1036, 12 U.S.C. 5531, 5536.
    \3\ See CFPB Exam Manual at UDAAP 5 (noting that the standard 
for ``deceptive'' practices in the Dodd-Frank Act is informed by the 
standards for the same terms under Section 5 of the FTC Act).
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    Depending on the facts and circumstances, the following non-
exhaustive list of examples of conduct related to phone pay fees may 
constitute UDAAPs or contribute to the risk of committing UDAAPs.\4\ 
Accordingly, the

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Bureau will be watching these practices closely.
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    \4\ The Bureau will also review whether phone pay fee conduct 
may violate the Dodd-Frank Act's prohibition on abusive acts or 
practices. 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. Dodd-Frank Act Sec.  1031(d), 12 U.S.C. 5531(d). 
See CFPB Bulletin 2013-07: Prohibition of Unfair, Deceptive, or 
Abusive Acts or Practices in the collection of Consumer Debts, 
available at http://files.consumerfinance.gov/f/201307_cfpb_bulletin_unfair-deceptive-abusive-practices.pdf for 
additional guidance on UDAAPs.
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Failing To Disclose the Prices of All Available Phone Pay Fees When 
Different Phone Pay Options Carry Materially Different Fees
    Many entities charge different phone pay fees depending on the 
payment method used by the consumer. Prior to charging such fees, 
entities sometimes send periodic billing statements or other 
documentation that discloses that ``transaction fees may apply'' to 
various payment methods, but that do not disclose the relevant fees to 
be charged for those methods.\5\ In some of these instances, entities 
may depend solely on phone representatives to disclose the relevant 
fees to consumers before the charge is imposed. Yet, the phone 
representatives may potentially only reveal the higher-cost options or 
fail to inform consumers of the material price difference between 
available options. This conduct poses a risk of an unfair practice: It 
may cause substantial harm to consumers, who are pushed into materially 
higher-cost options; this harm may not be reasonably avoidable if 
consumers are unable to select lower-cost alternatives because they do 
not have the necessary information to know that such options are 
available; and countervailing benefits to consumers or competition may 
not warrant the entity's failure to disclose the materially different 
prices of the available phone pay options to its consumers.
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    \5\ Where applicable, 12 CFR 1026.7(a)(6)(ii) and 
1026.7(b)(6)(iii) of Regulation Z will require disclosure in 
subsequent periodic billing statements of the amount of such fees 
paid in connection with prior billing periods.
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Misrepresenting the Available Payments Options or That a Fee Is 
Required To Pay by Phone
    Entities sometimes charge a fee for expedited phone payments, but 
also offer consumers no-fee phone pay options that post after a 
processing delay. Some entities in turn offer their fee-based expedited 
payment option as their default pay-by-phone option. In such cases, 
disclosures in connection with the default option may risk misleading 
consumers into believing that a fee is required under all circumstances 
to make any payment by phone.
    For example, in a public enforcement action, the Bureau alleged 
that an entity and its service provider engaged in deceptive acts or 
practices when it gave delinquent credit card holders the false 
impression that they had to pay $14.95 to make payment by phone when, 
in fact, the sole purpose of that fee was to expedite phone payments. 
Specifically, the Bureau alleged that the entity or its service 
provider: (i) Misrepresented in credit card agreements that the fee's 
purpose was to allow payment by phone, when its purpose was solely to 
ensure payment posted the same day it was made; (ii) failed to disclose 
during collection calls that the fee's purpose was solely to expedite 
payment, and in certain circumstances misrepresented that the fee was a 
``processing fee''; (iii) volunteered that consumers could make payment 
using a checking account and triggered the fee by setting such payments 
to post immediately by default; and (iv) failed to disclose the 
existence of no-cost payment alternatives, including free next-day 
payment.\6\
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    \6\ See In re Citibank, N.A. et al., No. 2015-CFPB-0015 (July 
21, 2015).
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    In another public enforcement action, the Bureau alleged that a 
mortgage servicer engaged in a deceptive practice by misrepresenting to 
consumers, both expressly and by implication, that a particular pay-by-
phone option was the only available payment method, or that consumers 
must use the particular pay-by-phone option in order to avoid negative 
consequences, including incurring a late fee or even facing 
foreclosure. In fact, the servicer accepted several payment options 
free of charge. In many instances, consumers could have used these 
other payment methods to make timely payments and avoid late fees.\7\
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    \7\ See FTC and CFPB v Green Tree Servicing, LLC., No. 15-cv-
02064 (April 23, 2015).
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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
    An entity may risk engaging in a deceptive act or practice when it 
fails to disclose that a phone pay fee will be charged in addition to a 
consumer's otherwise applicable payment amount and indicates to that 
consumer that only the otherwise applicable payment amount will be 
charged.\8\ This conduct may leave the misimpression that there is no 
service fee, when in fact the entity does charge the consumer a fee. 
This potential misrepresentation may be material to consumers because a 
consumer who knows about the fee may inquire whether there is an 
alternative payment option with a lower fee or may choose a payment 
method that requires no fee.
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    \8\ An example would be as follows: A consumer owes a payment of 
$250. The consumer calls and tells the customer service 
representative that she will pay by phone. The customer service 
representative confirms that the borrower authorizes a payment of 
$250. In fact, the consumer's bank account is debited $265 . . . 
$250 for the otherwise applicable payment amount and $15 for a pay-
by-phone fee.
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Lack of Employee Monitoring or Service Provider Oversight May Lead to 
Misrepresentations or Failure To Disclose Available Options and Fees
    A number of entities have policies and procedures in place 
requiring phone representatives to disclose all available phone pay 
options and fees to consumers, including requiring the use of detailed 
phone scripts. But deviations from call scripts may potentially cause 
phone representatives to misrepresent the available phone payment 
options and fees resulting in a consumer being charged a higher fee 
than otherwise would have been applicable. Entities can reduce the risk 
of misrepresentations through adequate monitoring.
    In November 2016 the Bureau issued a separate bulletin on detecting 
and preventing consumer harm from production incentives.\9\ Companies 
may wish to consult that bulletin when considering incentive programs 
for employees that process phone pay fees. Companies should also 
consider the impact that incentives created by contracts and agreements 
with service providers might have on compliance risk relating to 
potential UDAAPs associated with phone pay fees.
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    \9\ CFPB Compliance Bulletin 2016-03 (Nov. 28, 2016), available 
at https://www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/cfpb-compliance-bulletin-2016-03-detecting-and-preventing-consumer-harm-from-production-incentives/.
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Examples of Conduct That May Violate or Risk Violating the FDCPA
    Under the FDCPA, a person defined as a ``debt collector'' is 
prohibited from charging fees, including phone pay fees, in certain 
instances.\10\ Under Section 808(1) of the FDCPA, a debt collector may 
not collect any amount (including any interest, fee, charge, or expense 
incidental to the principal obligation) unless such amount is expressly

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authorized by the agreement creating the debt or permitted by law.\11\
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    \10\ Debt collectors sometimes charge ``convenience fees'' or 
fees for processing consumer payments through a particular channel.
    \11\ 15 U.S.C. 1692f(1).
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    Supervision has found that one or more mortgage servicers that met 
the definition of ``debt collector'' under the FDCPA violated the Act 
when they charged fees for taking mortgage payments over the phone to 
borrowers whose mortgage instruments did not expressly authorize 
collecting such fees and who reside in states where applicable law does 
not expressly permit collecting such fees. Supervision directed one or 
more servicers to review mortgage notes and applicable state law, and 
to only collect pay-by-phone fees where expressly authorized by 
contract or state law.\12\
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    \12\ See Supervisory Highlights, Fall 2015 edition at pp. 20-21.
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The Bureau's Expectations

    The Bureau expects entities to review their practices on charging 
phone pay fees for potential risks of committing UDAAPs or violating 
the FDCPA. While the Bureau does not mandate any particular method for 
informing consumers about the available phone pay options and fees, 
entities should consider the following suggestions in assessing whether 
their practices may present a risk of constituting a UDAAP or FDCPA 
violation:
     Review applicable State and Federal laws, including the 
FDCPA, to confirm whether entities are permitted to charge phone pay 
fees.
     Review underlying debt agreements to determine whether 
such fees are authorized by the contract.
     Review internal and service providers' policies and 
procedures on phone pay fees, including call scripts and employee 
training materials, and revise policies and procedures to address any 
concerns identified during the review, as appropriate.\13\
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    \13\ Entities should refer to CFPB Compliance Bulletin and 
Policy Guidance; 2016-02, Service Providers (Oct. 31, 2016), 
available at https://www.consumerfinance.gov/documents/1385/102016_cfpb_OfficialGuidanceServiceProviderBulletin.pdf.
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     Review whether information on phone pay fees is shared in 
account disclosures, loan agreements, periodic statements, payment 
coupon books, on the company's Web site, 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 phone pay fees.
     Perform regular reviews of service providers as to their 
pertinent practices.\14\
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    \14\ Id.
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     Review that the entity has a corrective action program to 
address any violations identified and to reimburse consumers when 
appropriate.
    Entities should also consider reviewing employee and service 
provider production incentive programs to see if there are incentives 
to steer borrowers to certain payment types or to avoid disclosures. As 
discussed in more detail in CFPB Compliance Bulletin 2016-03,\15\ the 
Bureau acknowledges that production incentives have been common across 
many economic sectors and can affect a wide range of outcomes for 
employees or service providers, from their compensation levels to 
whether they will continue to be employed or retained at all. The 
Bureau has also highlighted the risks posed to consumers by production 
incentive programs, especially when they create an unrealistic culture 
of high-pressure targets or when the activities of employees or service 
providers are not adequately monitored for compliance with the law.
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    \15\ See CFPB Bulletin 2016-03, Detecting and Preventing 
Consumer Harm from Production Incentives (Nov. 28, 2016), available 
at https://www.consumerfinance.gov/documents/1537/201611_cfpb_Production_Incentives_Bulletin.pdf.
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    In the context of phone pay fees, production incentives may enhance 
the potential risk of entities engaging in UDAAPs. Production 
incentives that reward employees or service providers based on 
consumers using a higher-cost phone pay option may potentially lead 
entities to steer consumers to a higher-cost option despite the 
availability of lower-cost alternatives. Similarly, incentive programs 
that reward representatives who complete a large number of daily calls 
may potentially cause these representatives to spend less time 
discussing the available phone pay options and fees resulting in the 
consumer paying a higher fee because the consumer is not informed of 
the lower-cost alternatives. Entities should review these programs 
accordingly.
    The Bureau will continue to review closely the practices of 
entities assessing phone pay fees for potential UDAAPs and FDCPA 
violations, including the practices described above. The Bureau will 
use all appropriate tools to assess whether supervisory, enforcement, 
or other actions may be necessary.

[2]. Regulatory Requirements

    This Compliance Bulletin is a non-binding general statement of 
policy articulating considerations relevant to the Bureau's exercise of 
its supervisory and enforcement authority. It is therefore exempt from 
notice and comment rulemaking requirements under the Administrative 
Procedure Act pursuant to 5 U.S.C. 553(b). Because no notice of 
proposed rulemaking is required, the Regulatory Flexibility Act does 
not require an initial or final regulatory flexibility analysis. 5 
U.S.C. 603(a), 604(a). The Bureau has determined that this Compliance 
Bulletin does not impose any new or revise any existing recordkeeping, 
reporting, or disclosure requirements on covered entities or members of 
the public that would be collections of information requiring OMB 
approval under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq.

    Dated: July 25, 2017.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2017-16188 Filed 8-1-17; 8:45 am]
 BILLING CODE 4810-AM-P