Maryland Regulator Warns Lenders and Servicers About Assessing So-called ‘Convenience Fees’ | Alston and bird

A&B Summary:

On May 12, 2022, the Maryland Office of the Commissioner of Financial Regulation (the “OCFR”) issued a Notice to Industry (the “Notice”) “updated[ting] [the] industry on the advice of the recent decision issued by the Court of Appeals for the 4th Circuit of Ashly Alexander, and. Al.c. Carrington Mortgage Services, LLC. The notice directs lenders and servicers to review their practices with respect to charging loan payment fees to borrowers (referred to as “convenience fees”) both to ensure continued compliance with the law and to determine if inappropriate charges have already been assessed so that they can undertake appropriate refunds to affected borrowers.

The Carrington Decision

In Carringtonthe 4e The Circuit Court of Appeals has ruled that the Maryland Consumer Debt Collection Act (“MCDCA”) incorporates §§ 804 through 812 of the Federal Fair Debt Collection Practices Act (“FDCPA”) , including the FDCPA’s prohibition of “[t]his collection of any amount (including interest, fees, charges or expenses incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or authorized by law”, under Section 808(1 ). Because Maryland law does not permit or expressly authorize the assessment of convenience charges, the court held that such charges must be expressly authorized by the loan documents to be authorized under Section 808. (1).

The Carrington The court further clarified that the substantive provisions of the FDCPA apply to any person who meets the broad definition of a “collector” under the MCDCA, even if that person would not be considered a debt collector. “collection agent” under the FDCPA. Notably, the FCDPA contains important exclusions from the definition of “collector,” such as where a person is collecting a debt that was obtained prior to default, or if the person collecting the debt was the original creditor. On the other hand, as amended effective October 1, 2018, the MCDCA defines a “collector” broadly to include all persons who collect or attempt to collect an alleged debt arising from a consumer transaction and does not provide similar exclusions. We discussed the Carrington decision in more detail in a precedent blog post.

The board

The notice reminds “collectors” of Maryland Carrington court ruling that charging fees on any form of loan repayment violates the MCDCA if the fees are not disclosed in the loan documents. Accordingly, Maryland lenders and servicers are cautioned “that all fees charged, whether for convenience or to recover actual costs incurred by lenders and servicers for loan payments made by credit cards , debit cards, the Automated Clearing House (ACH), [or other payment methods], must be specifically authorized by the applicable loan documents. The notice states that “[i]If such a fee is not provided for in the applicable loan documents, it would be considered illegal. Additionally, attempts to circumvent this fee restriction by directing consumers to a payment platform associated with the lender or servicing agent that collects loan repayment fees or by requiring consumers to change their lending for the purpose of inserting these fees could also violate Maryland law.

The notice anticipates that certain lenders or managers may cease to offer certain payment options due to the Carrington decision. However, the Commissioner specifically requests that such lenders or providers promptly notify their customers of such a change and encourages lenders and providers “to work with consumers to minimize the impact that any change in payment options may have, including , if possible, by continuing these free payment options. , especially when consumers are trying to fulfill their obligations in a timely manner. »

Lenders and servicers are encouraged to review their records to determine if inappropriate charges have already been assessed and, if so, make appropriate refunds to affected borrowers. OCFR intends to monitor the impact that Carrington decision has on lender and servicer fee practices and lenders and servicers can expect follow-up on this topic from OCFR in the coming months.

Carry

The repercussions of Carrington decision are many. First, lenders and servicers should immediately stop collecting convenience fees from Maryland borrowers, unless such fees are specifically authorized by loan documents. Lenders and servicers who choose to discontinue certain payment services due to the Carrington decision, must also ensure that the consumers concerned are promptly informed of such a change. In addition, lenders and service agents who meet the definition of a “collector” under the MCDCA must ensure compliance with §§ 804 through 812 of the Federal FDCPA, whether or not they meet. the FDCPA’s definition of a “collector”. Finally, while the Carrington decision dealt with the eligibility of convenience fees, we note that the court also held that “[t]FDCPA wide-ranging language [under § 808(1)] applies directly to the collection of “any amount”. Thus, the implications of Carrington The ruling goes beyond convenience fees to arguably any other fees not expressly authorized by loan documents or authorized by law, and we understand that Maryland regulators have informally indicated this. Accordingly, lenders and servicers should carefully review all charges that are or may be imposed on Maryland borrowers to ensure that such charges are either expressly authorized by the loan documents or authorized by law.

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