The revised notice interprets a recent court decision and its impact on current, future and past convenience fee charges.
05/13/2022 4:30 P.M.
3 minute read
On May 13, the Maryland Commissioner of Financial Regulation issued an “Industry Advisory Regulatory Guidance” (notice) that interprets a January federal appellate court decision and directs lenders and servicers—ostensibly including debt collectors—to review their practices in charging consumer borrowers loan payment fees, i.e., “convenience fees.”
In the notice, the commissioner warns that affected regulated entities should consider whether refunds may be warranted under the new interpretation.
In the appellate decision that the notice addresses, Ashly Alexander, et. al. v. Carrington Mortgage Services, LLC, Case No. 20-2359 (4th Circuit, Jan. 19, 2022), the U.S. Court of Appeals for the 4th Circuit held that collecting fees on any form of loan payment violates the Maryland Consumer Debt Collection Act if the fees are not set forth in the underlying loan documents, according to the Commissioner’s notice.
Specifically, according to the notice, “any fee charged, whether for convenience or to recoup actual costs incurred by lenders and servicers for loan payments made through credit cards, debit cards, the automated clearing house (ACH), etc., must be specifically authorized by the applicable loan documents.”
The stated purpose behind the Commissioner’s advisory “is to put industry on notice” about the Carrington decision “and to direct lenders and servicers to review their practices in charging consumer borrowers loan payment fees both to ensure ongoing compliance with the law and to determine whether any improper fees have previously been assessed so that they can undertake appropriate reimbursements to affected borrowers.”
Critically for the accounts receivable management industry, though, the notice notes that although loan payment “convenience fees” historically relate to mortgage loans, the Carrington decision—in the Commissioner’s view—applies not only to “all lenders and servicers of all extensions of consumer credit made to Maryland residents” but, additionally, that “the conclusions reached in the Carrington decision extend to all lenders and servicers, as well as any other person seeking to collect a consumer debt.” (Emphasis added.)
Additionally, “attempts to circumvent this fee restriction by directing consumers to a payment platform associated with the lender or servicer that collects a loan payment fee or requiring consumers to amend their loan documents for the purposes of inserting such fees could also violate Maryland law.” (Emphasis added.)
Accordingly, the Commissioner has directed lenders and servicers (and, presumably, debt collectors, which the Commissioner believes to be covered by the Carrington decision) as follows:
- “To the extent any lenders or servicers decide to discontinue offering certain payment options, the Commissioner requests that such lenders or servicers promptly notify their customers of such change. Lenders and servicers are encouraged to work with consumers to minimize the impact any change in payment options could have, including where possible, continuing such payment options without fees, especially when consumers are attempting to pay their obligations in a timely manner.”
- “Lenders and servicers should commence a review of their records to determine whether any improper fees have previously been assessed and undertake appropriate reimbursements to affected borrowers.”
- “Finally, lenders and servicers should be aware that the Commissioner is issuing a consumer advisory regarding this subject and should ensure that staff members who interact with Maryland consumers are aware of the implications of the Carrington decision and do not convey inaccurate information to Maryland consumers.”
These points implicate potential liability for debt collectors that do apply or have applied, within relevant limitations periods, convenience fees in Maryland.
The Office of the Commissioner of Financial Regulation will monitor and follow-up on the impact the Carrington decision has on lender and servicer fee practices.
Read the Maryland Commissioner of Financial Regulation’s notice here. For questions about the advisory, members can contact Clifford Charland, acting assistant commissioner, at (410) 230-6167 or [email protected].
ACA is reviewing the notice to provide more analysis for members soon.