Pay-by-Phone Fees Get a Call From the CFPB

Financial Services Law

Be careful with pay-by-phone fees, the Consumer Financial Protection Bureau (CFPB or Bureau) cautioned companies in a new compliance bulletin, expressing concern about businesses “potentially misleading consumers about the purpose and amount of certain pay-by-phone fees or keeping them in the dark about much cheaper payment options.”

What happened

Most financial services companies give consumers multiple options to make payments, the Bureau noted, one of which is paying by phone using an automated system or speaking with a live representative.

But the use of the pay-by-phone option presents the potential for unfair, deceptive or abusive acts or practices (UDAAP) that may violate the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition of such practices, the CFPB cautioned.

To avoid the possibility of harmful acts, the Bureau published a new compliance bulletin offering guidance to covered persons and service providers, advising that entities should review their policies and procedures to ensure they aren’t running afoul of the Dodd-Frank UDAAP provision or any other state and federal laws.

Some entities fail to disclose the prices of all available pay-by-phone options when different options carry materially different fees, the CFPB said. Documentation may disclose that “transaction fees may apply,” but the company may depend solely on phone representatives to disclose the relevant fees 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 different options,” the Bureau wrote. “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.”

Other companies may misrepresent the available payment options or that a fee is required to pay by phone, according to the bulletin. In one enforcement action, the Bureau alleged that an entity and its service provider gave delinquent customers a false impression that it cost $14.95 to make a payment by phone when, in reality, the charge was to expedite the payment—an option not all consumers may have elected to take advantage of, the CFPB said.

Similarly, the agency took action against a mortgage servicer for deceiving consumers based on its practice of misrepresenting that a particular pay-by-phone option was the only available payment method and had to be used in order to avoid negative consequences such as foreclosure.

Failing to disclose that a pay-by-phone fee would be added to a consumer’s payment could create the misimpression that there was no service fee, the bulletin stated. For example, if a consumer owes a payment of $250 and a customer service representative on the phone confirms the payment amount but debits the customer’s bank account $265—the $250 payment and a $15 pay-by-phone fee—an entity would be engaging in a deceptive act, the CFPB said.

Finally, the Bureau urged companies to engage in employee monitoring or service provider oversight and avoid production incentives. Drawing on last year’s Compliance Bulletin 2016-03, warning financial institutions about incentive programs, the CFPB said the use of programs that reward representatives enhances the potential risk of Dodd-Frank violations.

Incentives that reward employees based on consumers using a high-cost pay-by-phone option “may potentially lead entities to steer consumers to a higher-cost option despite the availability of lower-cost alternatives,” while rewarding the completion of 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,” the bulletin stated.

While the Bureau does not mandate any particular method for informing consumers about the available pay-by-phone options and fees, the bulletin encourages entities to review internal and service providers’ policies and procedures (including call scripts and training materials), consumer complaints about pay-by-phone fees (to help target any potential problems), and applicable law to confirm compliance with state and federal law.

The CFPB also suggested that entities perform regular reviews of service providers, incorporate pay-by-phone issues in regulator monitoring or audits of calls with consumers, and keep a close eye on incentive programs.

To read the CFPB’s compliance bulletin, click here.

Why it matters

Notwithstanding challenges it is facing from the Trump administration and Congress, the CFPB continues to ferret out practices that it believes raise UDAAP concerns. “The Bureau is warning companies about tricking consumers into more expensive fees when they pay bills by phone,” CFPB Director Richard Cordray said in a statement about the bulletin. “We are concerned that companies are misleading consumers about pay-by-phone fees or keeping them in the dark about much cheaper or no-cost payment options.” Cautioning covered entities that it “will be watching these practices closely,” the CFPB said it will “use all appropriate tools to assess whether supervisor, enforcement, or other actions may be necessary.”



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