The United States Court of Appeals for the Fourth Circuit recently ruled that a mortgage manager violated the Maryland Consumer Debt Collection Act (MCDCA) by charging borrowers a $5 convenience fee for monthly payments made by phone or online.
In Alexander v. Carrington Mortgage Services, LLC, plaintiffs filed a class action lawsuit against Carrington, their mortgage manager, challenging the convenience fee in which they alleged that the manager violated MCDCA Section 14-202(11) by engaging in conduct that violates the Fair Debt Collection Practices Act. (FDCPA) (Sec. 14-202(11) Claim) and MCDCA Section 14-202(8) when attempting to assert a right knowing that such right does not exist (Sec. 14-202(8) Complaint) . Regarding Sec. 14-202(11) Claim, plaintiffs argued that the repairer violated the FDCPA provision which prohibits a “[t]the collection of any amount (including any interest, commission, charge or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.
The District Court dismissed MCDCA’s claims, finding that the service agent was not a “collector” for the purposes of either MCDCA’s claims. As for Sec. 14-202(11) Claim, it also held that the service agent was not a “collection agent” under the FDCPA, the plaintiffs’ choice to make online payments was “authorized by the law” and the convenience fee was not “incidental”. to applicants’ mortgage debt. As for Sec. 14-202(8) Application, the district court held that the server agent had the “right” to collect the convenience fee, since the mortgage documents did not expressly prohibit the fee and the plaintiffs had voluntarily chosen to make payments online.
In reversing the District Court, the Fourth Circuit first found that the repairer was a “collector” under the MCDCA which defines a “collector” as “a person collecting or attempting to collect an alleged debt arising from a consumer transaction”. Among the Duty Officer’s arguments rejected by the Fourth Circuit was his argument that plaintiffs had to demonstrate that the Duty Officer was also a “collection agent” under the FDCPA to establish a violation of Sec. 14-202(11). The Fourth Circuit went on to hold that the administrator’s imposition of the convenience fee qualified under the FDCPA as collecting an “amount” that was “incidental” to the plaintiffs’ mortgage debts. He also ruled that the convenience fee was not “authorized by law”. In so ruling, the Fourth Circuit rejected the Administrator’s argument that a charge is “permissible by law” so long as there is no express statutory prohibition. She also rejected the server agent’s argument that under common law contractual principles, convenience fees were “permitted by law” under the plaintiffs’ expression of assent in the click agreements. in line. According to the Fourth Circuit, for a right to be “permitted by law”, it must be expressly permitted or authorized by law.
The Fourth Circuit also reversed the District Court’s dismissal of Sec. 14-202(8) Complaint. According to the Fourth Circuit, by charging the convenience fee, the repairer had asserted rights that do not exist for the purposes of Sec. 14-202(8) because such charges are prohibited by Sec. 14-202(11).
In their complaint, the plaintiffs also alleged that by violating the MCDCA, the repairer violated the Maryland Consumer Protection Act (MCPA), which makes a violation of the MCDCA an inherent violation of the MCPA. Having found that the duty officer violated the MCDCA by engaging in conduct that violated the FDCPA, the Fourth Circuit also reversed the district court’s dismissal of plaintiffs’ MCPA derivative claim.
The Fourth Circuit ruling could lead to similar lawsuits challenging convenience fees charged by mortgage servicers and other consumer financial service providers under debt collection laws in other states that broadly enforce the FDCPA prohibitions on first party collections and other persons engaged in collection activities who are not “collection agents” under the FDCPA. Additionally, the CFPB highlighted a wide range of fees charged by mortgage servicers and other consumer financial service providers with its announcement last week that it was launch an investigation into “junk fees”.“As a result, mortgage servicers and other providers should expect that many of their fees will also come under scrutiny from state regulators and attorneys general as well as attorneys.” complainants.
On February 17, 2022, from 2:30-3:30 p.m. ET, Ballard Spahr will host a webinar titled “The CFPB’s Investigation into ‘Unwanted Fees’: What It Means for Consumer Financial Service Providers.” »