Convenience fee concerns exist for lenders
Like us before reported in our newsletter Relating to Real Estate, the Court of Appeals for the Fourth Circuit (Court) ruled in January that mortgage managers are debt collectors under the Maryland Consumer Debt Collection Act (MCDCA). Additionally, the court ruled that the $5 convenience fee charged to borrowers who paid their monthly mortgage bills online or over the phone violated the MCDCA, even though borrowers had been told they would incur the fee if they paid. online or by phone.
the Case pointed out the differences between Maryland and federal law in the debt collection space.
The Court clarified that an entity that is not a typical third-party debt collector is covered by the MCDCA. This is noteworthy, because MCDCA-covered “collectors” are prohibited from engaging in conduct that would violate specified provisions of the Federal Fair Debt Collection Practices Act (FDCPA) even though under the FDCPA (alone), a creditor collecting its own debts in its own name is generally exempt from the FDCPA.
In this case, it involved a mortgage manager charging a fee that was not expressly authorized in the loan documents and not expressly authorized by another provision of Maryland law. Under the MCDCA, a “collector” is anyone who collects consumer contracts; in turn, the definition of “consumer contract” is extremely broad. A financial institution collecting its own debts fits these definitions, and there are no banks, credit unions, or similar exemptions in the MCDCA.
Because of the case, Maryland lenders who collect their own loan repayments and charge convenience fees must assess whether they:
- Include a provision in their loan documents that authorizes such charges; or
- Have a clear legal basis under Maryland law to collect the fees they assess.
Because the case held that there was no basis under Maryland law for the mortgage manager to collect the convenience fee at issue, SB217 (the bill) was proposed in the recent legislative session of Maryland. The bill would have authorized convenience fees that were pass-through expenses from third-party payment processors in certain circumstances.
Unfortunately, the bill did not pass into law when Maryland’s legislative session ended earlier this week. This leaves Maryland lenders subject to Maryland law in the position of not having a legal basis under Maryland law to collect convenience fees. For this reason, Maryland lenders should assess whether their underlying loan documents clearly authorize the specified charges.