In a number of recent decisions, district courts have split on the issue of whether a mortgage servicer violates the Fair Debt Collection Practices Act (“FDCPA”) and related state debt collection statutes by charging a borrower a convenience fee for making a mortgage payment over the phone, interactive voice recording system (“IVR”).
FDCPA Sections 1692(f) and 1692a
Section 1692(f) of the FDCPA prohibits a debt collector from using unfair or unconscionable means to collect any debt, and enumerates specific examples of prohibited conduct. Such conduct includes the “[c]ollection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement created the debt or permitted by law. 15 U.S.C. § 1692f(1).
The FDCPA defines “debt collector” as “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” 15 U.S.C.A. § 1692a(6). Among other things, the term “debt collector” does not include “any person collecting or attempting to collect any debt owed or due . . . to the extent such activity . . . concerns a debt which was originated by such person” or “concerns a debt which was not in default at the time it was obtained by such person….” Id.
Overview of Convenience Fees
In addition to offering consumers several no-cost options to make a timely monthly mortgage payment, many servicers also offer borrowers a means to make an immediate payment on their mortgage by phone, IVR, or the Internet. Servicers who make such services available to their customers may charge a fee, often referred to as a “convenience fee,” in connection with this service. In a wave of recent cases, borrowers who have elected to use such payment methods and consequently incurred convenience fees have sued their mortgage servicers, alleging that the convenience fees violated the FDCPA. Frequently, these borrowers also allege that the convenience fees violated other state consumer protection statutes, breached the express terms of their mortgage agreements, and ran afoul of common law.
This year, numerous courts across the country have ruled on loan servicers’ motions to dismiss convenience claims asserted by borrowers. A clear split has now emerged regarding the viability of plaintiffs’ legal theories.
Some Courts Dismiss Plaintiffs’ FDCPA Claims, Finding Plaintiffs’ Allegations Concerning Convenience Insufficient to State a Violation of the FDCPA
Many courts, largely in district courts in Florida, have dismissed borrowers’ claims for failure to state a claim under the FDCPA and related state acts. According to these courts, a convenience fee is neither a “debt,” nor is it properly characterized as “incidental” to the mortgage debt itself. Moreover, these courts have also rejected the argument that the servicer is “debt collector” under the FDCPA unless the loan was in default when the borrower became obligated to pay the convenience fee.
One of the key decisions in this recent line of cases in Turner v. PHH Mortgage Corp. No. No. 8:20-cv-00137-T-30SPF (Feb. 24, 2020 M.D. Fla.). There, PHH charged Turner for making mortgage payments via telephone or online. Turner alleged those convenience fees violated the FDCPA, and its Florida counterpart, the Florida Consumer Collection Practices Act (“FCCPA”). PHH responded by moving to dismiss those claims. The court agreed with PHH, concluding that the convenience fees were not debts owed another as contemplated by the acts. Further, the court found that even if the fees were debts, PHH’s optional payment services had separate convenience fees that originated with PHH—not with Turner’s mortgage.
Additionally, the court relied on the fact that when Turner became obligated to pay the convenience fees, she was not in default in her obligation to pay it. Thus, according the court’s analysis, PHH was not acting as a debt collector under the acts because (1) the debt was not in default and (2) the debt originated with PHH. A number of other courts have since dismissed the borrowers’ claims under similar reasoning, often citing Turner’s analysis as persuasive. See, e.g. Estate of Derrick Campbel. V. Ocwen Loan Serv., LLC, No. 20-CV-80057-AHS, slip op. at 5 (S.D. Fla. Apr. 30, 2020); Reid v. Ocwen Loan Serv., LLC, No. 20-CV-80130-AHS, 2020 U.S. Dist. LEXIS 79378 (S.D. Fla. May 4, 2020); Bardak v. Ocwen Loan Serv., 2020 U.S. Dist. LEXIS 158874 (M.D. Fla. Aug. 12, 2020).
Some Courts Find that Borrowers’ Allegations Concerning Convenience Fees Are Sufficient to State a Claim Under the FDCPA
A number of other courts across the country, from California to Florida to Texas, have concluded that a borrower does state a claim for violation of the FDCPA (or an equivalent state statute) by alleging that the borrower was charged a convenience fee in connection with a mortgage payment made over the phone, IVR, or Internet.
In contrast to the decisions discussed above, these courts find that the convenience fee is “incidental” to the mortgage debt under FDCPA section 1692f(1). These courts have rejected the servicers’ arguments that convenience fees are not incidental to the mortgage because they arise from separate services and obligations voluntarily undertaken by the borrower. They have found instead that, regardless of the fact that the payment method is optional, it is still incidental to the mortgage debt because the servicers only collect convenience fees when borrowers make debt payments. See, e.g., Glover v. Owen Loan Servicing, LLC, 2020 U.S. Dist. LEXIS 38701 (S.D. Fla. Mar. 2, 2020).
Similarly, the court in Glover further found that the convenience fees were not permitted by Florida law because the court could not identify any statute or law expressly permitting such fees, nor were they explicitly allowed by the mortgage agreement. A number of other courts have employed similar reasoning and refused to dismiss borrowers’ convenience fee claims under the FDCPA or corollary state statutes. See, e.g., Torliatt v. Ocwen Loan Serv., No. 19-cv-04303-WHO, 2020 U.S. Dist. LEXIS 141261 (N.D. Cal. Jun. 22, 2020) (refusing to dismiss claims under the Rosenthal Fair Debt Collection Practices Act—California’s equivalent of the FDCPA—and California’s Unfair Competition Law); Caldwell v. Freedom Mortg. Corp., No. 3:19-cv-02193-N (N.D. Tex. Aug. 14, 2020) (refusing to dismiss plaintiffs’ claims under the Texas Debt Collection Act).
There is a growing split among district courts regarding whether a borrower who is charged a convenience fee has a viable claim under the FDCPA. This division is particularly acute within the Eleventh Circuit, and is one unlikely to be resolved in the Court of Appeals any time soon. So, for the foreseeable future, we expect to see more lawsuits where borrowers seek to take advantage of the current state of legal uncertainty around convenience fees.