Why Maryland Collectors of Consumer Debts Need to Be Concerned About Convenience Fees
A recent Fourth Circuit Court of Appeals decision may have sweeping implications across the consumer debt collection industry in Maryland. In Alexander v. Carrington Mortgage Services, LLC, the Fourth Circuit held that a mortgage loan servicing company violated the Maryland Consumer Debt Collection Act and the Maryland Consumer Protection Act by charging debtors a convenience fee for making a one-time payment online or by phone, when the agreement creating the debt does not specifically allow the fee to be charged. A convenience fee is generally a fee charged to a consumer for the privilege of paying with an alternative non-standard payment method, usually to avoid the imposition of a late fee in a higher amount.
While a number of courts have found that the charging of a convenience fee by a “debt collector” is not permissible under the Fair Debt Collection Practices Act (FDCPA), the Carrington court extended this prohibition to apply to all collectors of consumer debts that charge a convenience fee to Maryland debtors. The Court concluded that the Maryland General Assembly intentionally incorporated the FDCPA’s “substantive provisions” and because Maryland’s definition of “collector” is far more expansive than the FDCPA’s definition of “debt collector,” the Maryland law captures entities that are usually outside the purview of the FDCPA. Based on this analysis, the Court held that the mortgage loan servicer falls within Maryland’s broad definition of “collector” and, therefore, violated Maryland law when it charged a convenience fee that was not permissible under the FDCPA. The Court reached this conclusion despite the fact that the mortgage loan servicer notified the debtors of the convenience fee and its amount and obtained the debtors’ affirmative acceptance to pay the fee through a clickwrap agreement.
Phew. After all of this, you may be thinking “why should I care about any of this if I am not a mortgage loan servicer?” Because, Carrington does not just apply to mortgage loan servicers. The reach of the decision is far and wide and extends to any person collecting or attempting to collect a consumer debt from a Maryland resident including original creditors collecting their own debts, property management companies collecting rent, and debt buyers collecting debts owed to themselves. We expect Carrington to be the first of many class action lawsuits to be filed, challenging the charging and collection of convenience fees by all types of collectors of consumer debts in Maryland. However, we also believe that the Fourth Circuit provided a roadmap of how to charge a convenience fee without violating both the FDCPA and Maryland law. Following this roadmap will not rewrite the past but it will protect against liability in the future.
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