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Some “unwanted” fees often collected by debt collectors are illegal under federal law, the Consumer Financial Protection Bureau said Wednesday.
Collection agents charge so-called “pay-to-pay” fees, also known as convenience fees, when consumers make a payment online or over the phone, according to the federal agency.
These charges violate the Fair Debt Collection Practices Act when they are not “expressly authorized by the agreement creating the debt” or in cases where they are not “expressly authorized by law“, the CFPB in an advisory opinion.
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“Federal law generally prohibits debt collectors from charging additional fees not authorized by the original loan,” CFPB Director Rohit Chopra said in a written statement Wednesday. “Today’s advisory opinion shows that these charges are often illegal and provides a roadmap of what fees a debt collector can legally collect.”
The Consumer Financial Protection Act transferred primary responsibility for the Fair Debt Collection Practices Act, including issuing regulations and ensuring compliance, to the CFPB in 2010, according to the announcement. agency.
The bureau issued a request in January asking consumers to comment on hidden and excessive fees from a range of lenders. Last week, CFPB officials indicated they could tighten rules governing late fees charged by credit card companies, which the agency classified as another type of “unwanted” fee.
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The U.S. Chamber of Commerce on Tuesday called Chopra’s program “ideologically motivated” and “illegal,” creating “uncertainty” that would lead financial firms to limit mortgages, auto loans and personal loans to consumers.
Among other criticisms, the trade group said the office manager “coined up the term ‘unwanted fees’ as an ‘exploitative revenue stream’ in a blunt attempt to defame legal products with well-disclosed terms.”
Leah Dempsey, a shareholder in lobbying firm Brownstein Hyatt Farber Schreck and a consultant for ACA International, a trade group representing debt collectors, questioned the legality of the CFPB’s actions on Wednesday.
“There are legal precedents in various states that contradict the actions today of a single unelected director at the CFPB,” Dempsey said in a written statement.
But some consumer groups consider that additional measures on debt collection costs are welcome to ease the financial burdens of households in difficulty.
“People in these situations are likely the least able to bear the added burden of costs” associated with debt they’ve already struggled to repay, according to Bruce McClary, senior vice president of memberships and communications at the National Foundation for Credit Counseling, a non-profit organization. offering consumer debt advice.