Convenience Fee: A Permissive Incidental Cost Says an Illinois District Court

The collection agency’s lack of profit from the convenience fee was pivotal in this case.

11/7/2019 8:30 AM

NewsFDCPA
Convenience Fee: A Permissive Incidental Cost Says an Illinois District Court

As many do, the dispute in this case boiled down to semantics; specifically, a disagreement over the meaning of the phrase “reasonable collection costs” provided for in a medical billing agreement. The defendant collection agency attempted to collect a debt from the consumer pursuant to a services agreement the consumer entered with the creditor. The agreement contained language stating that the consumer agreed to “pay the balance on the account plus the late charge fee, all reasonable collection costs, court, and reasonably attorneys’ fees.”

Despite eight letters mailed to the consumer seeking payment of the debt, the consumer instead made a payment using the defendant’s online payment service. The consumer’s charge for the online payment was broken down into two categories: a $40.22 “subtotal,” and a $3.00 “Service Fee.” The consumer sued the collection agency alleging various violations of the Fair Debt Collection Practices Act and state law claiming the service fee was false, misleading and an unfair collection practice. The parties cross-moved for summary judgment.

A thoughtful and well-developed court record led to the court’s decision in favor of the collection agency. Although the court did conclude that the service fee collected by the defendant is “incidental to the principal obligation” and thus, prohibited by Section 1692f(1) of the FDCPA, it is nevertheless permissible as a pass-through cost. The court concluded that, “Reasonable collection costs may include pass-through costs” as anticipated by the agreement between the consumer and the creditor.

Pivotal to the court’s decision was a declaration from the defendant’s representative that established the collection agency did not profit from the service fee. The court reasoned that the collection agency was not collecting an incidental obligation but merely intended to pass through a cost initiated by a credit card provider for which the collection agency does not realize a profit. Therefore, consistent with binding precedent in that jurisdiction, the court concluded that the “exception excluding pass-through fees from the FDCPA’s definition of ‘collection’ applies” in this case.

“The court’s examination of the law, and explanation that charges initiated by a credit card provider from which the collection agency earns no profit itself, is well-reasoned. This examination and explanation hopefully offer debt collectors some guidance on how to lawfully proceed when offering consumers the convenience afforded with paying with credit cards,” said Justin M. Penn a partner with the law firm Hinshaw and Culbertson, LLP who represented the defendant.


Follow ACA International on Twitter @ACAIntl and @acacollector, Facebook and request to join our LinkedIn group for news and event updates. ACA International members are welcome to submit news items for possible publication to comm@acainternational.org. Visit our publications page for news submission guidelines and subscriptions to ACA Daily, Collector magazine and Pulse.

Advertising is available for companies wishing to promote their products or services. Be sure to visit the ACA Events Calendar on the Education and Training page to view our listing of upcoming CORE Curriculum and Hot Topic seminars featuring critical educational opportunities for your company.


Subscribe to ACA Daily NEWSROOM

Convenience Fee: A Permissive Incidental Cost Says an Illinois District Court

As many do, the dispute in this case boiled down to semantics; specifically, a disagreement over the meaning of the phrase “reasonable collection costs” provided for in a medical billing agreement. The defendant collection agency attempted to collect a debt from the consumer pursuant to a services agreement the consumer entered with the creditor. The agreement contained language stating that the consumer agreed to “pay the balance on the account plus the late charge fee, all reasonable collection costs, court, and reasonably attorneys’ fees.”

Despite eight letters mailed to the consumer seeking payment of the debt, the consumer instead made a payment using the defendant’s online payment service. The consumer’s charge for the online payment was broken down into two categories: a $40.22 “subtotal,” and a $3.00 “Service Fee.” The consumer sued the collection agency alleging various violations of the Fair Debt Collection Practices Act and state law claiming the service fee was false, misleading and an unfair collection practice. The parties cross-moved for summary judgment.

A thoughtful and well-developed court record led to the court’s decision in favor of the collection agency. Although the court did conclude that the service fee collected by the defendant is “incidental to the principal obligation” and thus, prohibited by Section 1692f(1) of the FDCPA, it is nevertheless permissible as a pass-through cost. The court concluded that, “Reasonable collection costs may include pass-through costs” as anticipated by the agreement between the consumer and the creditor.

Pivotal to the court’s decision was a declaration from the defendant’s representative that established the collection agency did not profit from the service fee. The court reasoned that the collection agency was not collecting an incidental obligation but merely intended to pass through a cost initiated by a credit card provider for which the collection agency does not realize a profit. Therefore, consistent with binding precedent in that jurisdiction, the court concluded that the “exception excluding pass-through fees from the FDCPA’s definition of ‘collection’ applies” in this case.

“The court’s examination of the law, and explanation that charges initiated by a credit card provider from which the collection agency earns no profit itself, is well-reasoned. This examination and explanation hopefully offer debt collectors some guidance on how to lawfully proceed when offering consumers the convenience afforded with paying with credit cards,” said Justin M. Penn a partner with the law firm Hinshaw and Culbertson, LLP who represented the defendant.


Follow ACA International on Twitter @ACAIntl and @acacollector, Facebook and request to join our LinkedIn group for news and event updates. ACA International members are welcome to submit news items for possible publication to comm@acainternational.org. Visit our publications page for news submission guidelines and subscriptions to ACA Daily, Collector magazine and Pulse.

Advertising is available for companies wishing to promote their products or services. Be sure to visit the ACA Events Calendar on the Education and Training page to view our listing of upcoming CORE Curriculum and Hot Topic seminars featuring critical educational opportunities for your company.


Subscribe to ACA Daily NEWSROOM

Loading...

Loading...

Scroll to Top