Sep 20, 2013 Philip Burgess
For many years, debt collection agencies have used convenience fees in their routine attempts to help debtors close accounts in a responsible manner. Although they have been utilized for some time, many industry professionals make compliance mistakes when using convenience fees, which can land them in legal trouble.
For example, the Federal Trade Commission (FTC) reached a settlement with a collection enterprise earlier this year after a debt buyer and collection law firm failed to follow federal debt collection laws regulating the collection of such fees.
According to ACA International, the reason the FTC pursued the case was because the collectors repeatedly failed to notify consumers that they were not required to immediately make a payment over the phone, which came with a convenience fee. They could have avoided this issue by simply informing borrowers that they pay the fee by making a traditional payment by mail or online.
The source stressed that no civil penalties were brought against the collection parties in question, but the settlement fee was just under $800,000, which accounts for a massive loss for the companies.
Navigating the compliance barriers
The legal stipulations regarding convenience fees are some of the lesser known federal and state laws debt collectors have to abide by. Although they can be difficult to navigate, convenience fees are a great way for collectors to obtain payments, according to John Bedard, a industry compliance expert cited by insideARM.
Bedard noted that immediate payments can be beneficial for consumers because they allow debtors to make quick transactions on their outstanding accounts, reducing their debt load. However, if collectors charge to much or do not disclose that a consumer is being charged for an immediate payment, they may run into compliance issues.
In fact, he stressed that some states prohibit the collection of convenience fees. Therefore, debt collection agencies that want to actively take advantage of these fees should consult with trusted legal representatives to understand the unique compliance issues of a given state.
Across the country, regulators are starting to pay closer attention to the actions of collectors who charge convenience fees. If an agency chooses to pursue these fees, they need to make sure all employees understand the complex legal barriers regarding the activity. They should be well-trained and know that it's always important to notify a consumer that they are being charged with a convenience fee.