Loan Servicing Convenience Fees
Loan Servicing Convenience Fees*
By J. Steven Lovejoy, Esq.
Can the holder/servicer of a mortgage loan charge a fee (sometimes called a “convenience fee”) for collecting a loan payment either online or over the phone? This question was the subject of a recent industry advisory from the Maryland Commissioner of Financial Regulation, and the answer was a definitive no.
The advisory comes in the wake of a Fourth Circuit case, Ashly Alexander, et. Al. v. Carrington Mortgage Services, LLC, Case No. 20-2359. Here’s some background information: the Maryland Consumer Debt Collection Act (MCDCA) prohibits, among other things, “conduct that violates §§ 804 through 812 of the federal Fair Debt Collections Act.” Md. Code Ann., Com. Law § 14-202(11). One relevant provision of the FDCPA is a prohibition to collect “any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” FDCPA § 808, 15 U.S.C. § 1692f(1). On top of that, the Maryland Consumer Protection Act (MCPA) prohibits “unfair, abusive, or deceptive trade practices . . . in consumer services” or “the collection of consumer debts.” Md. Code Ann., Com. Law § 13-303(1), (5).
Against this backdrop, Ashly Alexander filed a class action lawsuit against her mortgage company, Carrington Mortgage Services, for charging her a $5 convenience fee for paying her mortgage online or over the phone (there was also a free pay-by-mail option). The Fourth Circuit Court of Appeals ruled that such fees were, indeed, forbidden under the aforementioned statutes. The court reasoned that there is no substantive difference between debt collectors and mortgage servicers, and that, under the MCDCA, one can be a debt collector even if the debt is not in default. Moreover, the FDCPA’s provision “any amount” is broad enough to include these convenience fees. Finally, the court interpreted the phrase “unless . . . permitted by law” as requiring an affirmative sanction, as opposed to lack of prohibition. Seeing as Maryland lacks such a sanction, the court ruled definitively that these fees are prohibited by law, even though the customers had been forewarned and had agreed to pay them at the time.
This may be relevant in other states as well. Since the plaintiff’s argument was won by expounding on various parts of the FDCPA, there is ample reason to suspect that other states may choose to interpret those clauses similarly. This is apart from liability under actual Maryland law, which, incidentally, also prohibits such fees.
Pennsylvania statutory law would seem to prohibit such fees, apart from the FDCPA. Title 7 of the Pennsylvania Statutes, Banks and Banking, contains the following clause: “A licensee engaging in the mortgage loan business shall not: (1) Charge, contract for, collect or receive charges, fees, premiums, commissions or other considerations in excess of the limitations of those contained in this chapter.” 7 Pa. Stat. and Cons. Stat. Ann. § 6123. There is no mention of anything resembling such fees in the rest of the chapter. Moreover, “mortgage loan business” is defined as “the business of: (1) advertising, causing to be advertised, soliciting, negotiating or arranging in the ordinary course of business or offering to make or making mortgage loans; or (2) servicing mortgage loans.” Id. at § 6102.
In other words, Pennsylvania mortgage companies cannot, in the process of servicing their loans, charge any fee not expressly allowed for in Chapter 61 of the Pennsylvania Statutes. This would include convenience fees, such as fees for paying online or with a live agent, or a surcharge for paying by credit card. It is not clear if such a prohibition applies to banks as well, however banks are cautioned that these types of fees are under scrutiny by regulators.
The information contained herein is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information contained in this blog should be construed as legal advice from Shumaker Williams P.C. or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. This blog is current as of the date of original publication.
*This article appeared in PACB’s Hometown Banker Magazine, Pub. 4 2022 Issue 5.
December 12, 2022