Fourth Circuit Rules Online Consumer Payments May Violate Consumer Protection Statutes

On January 19, 2022, the United States Court of Appeals, Fourth Circuit issued a ruling in Alexander v. Carrington Mortgages Services, LLC, indicating that additional fees being attached to a consumer’s charges for the “convenience” of paying for those charges online or by telephone could violate consumer protection statutes.

The consumer plaintiffs brought a class action suit against Carrington alleging that Carrington charged consumers a $5.00 “voluntary convenience fee” for paying monthly mortgage bills through an “alternate payment channel,” such as payments facilitated online or by phone. A unanimous vote of the Fourth Circuit held that Carrington's practice violated the Maryland Consumer Debt Collection Act (“MCDCA”) because mortgage servicers are deemed to be “debt collectors” under the MCDCA, which does not “explicitly permit” charging such fees. The court also held that Carrington's practice violated the Fair Debt Collection Practices Act (“FDCPA”)—the provisions of which were incorporated into the MCDCA—because the FDCPA requires that such a fee be “authorized by agreement or expressly permitted by law.”

Senate Bill 217, which would expressly authorize the assessment of limited “transaction fees” where a borrower is making payments on a loan, is currently pending in Maryland. However, financial institutions should consider the impact on their organization of this decision along with the recent push by the Consumer Finance Protection Bureau to extinguish “junk fees.”  Financial institutions should review their policies regarding fees that can be assessed against consumers.