Convenience Fee Concerns Exist for Lenders
As we previously reported in our Relating to Real Estate newsletter, the Fourth Circuit Court of Appeals (Court) in January held that mortgage servicers are debt collectors under the Maryland Consumer Debt Collection Act (MCDCA). Further, the court held that the $5 convenience fees charged to borrowers who paid monthly mortgage bills online or by phone violated the MCDCA even though the borrowers were told they would incur the fee if they paid online or by phone.
The case highlighted differences between Maryland and federal law in the debt collection space.
The Court made clear that an entity that is not a typical third-party debt collector is covered by the MCDCA. This is noteworthy, because covered “collectors” under the MCDCA 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 (standing alone), a creditor collecting its own debts in its own name is generally exempt from the FDCPA.
At issue in the case was a mortgage servicer charging a fee that was not expressly authorized in the loan documents and that was not expressly authorized by some other provision of Maryland law. Under the MCDCA, a “collector” is any person that collects consumer contracts; in turn, the definition of “consumer contract” is extremely broad. A financial institution collecting its own debts fits within these definitions, and there are no bank, credit union or similar exemptions in the MCDCA.
Because of the case, Maryland lenders who collect their own loan payments and charge a convenience fee should evaluate whether they:
- Include a provision in their loan documents that authorizes such a fee; or
- Have a clear statutory basis under Maryland law to collect the fee that they assess.
Because the case held that there was no basis under Maryland law for the mortgage servicer to collect the convenience fee at issue, SB217 (the Bill) was proposed during the recent Maryland legislative session. The Bill would have permitted convenience fees that were pass-through expenses of third-party payment processors under certain circumstances.
Unfortunately, the Bill was not enacted into law when the Maryland legislative session concluded earlier this week. This leaves Maryland lenders subject to Maryland law in the position of not having a statutory basis under Maryland law to collect a convenience fee. Because of this, Maryland lenders should evaluate whether their underlying loan documents clearly authorize the specified fee.
Christopher R. Rahl
410-576-4222 • firstname.lastname@example.org
Edward J. Levin
410-576-1900 • email@example.com