Joint Amicus Brief on Mortgage Servicing Convenience Fees

Introduction

Amici write to provide important background about the informed use of convenience fees by consumers, and the constraints on the contents of mortgage loan agreements. They also write to emphasize why the construction advanced by Appellants and amicus curiae Consumer Financial Protection Bureau (CFPB) of the phrase “permitted by law” in the Fair Debt Collection Practices Act (FDCPA) is improper, and will deprive consumers’ of important, cost-saving choices. 

Background

I. Consumers Make Informed Choices Knowing the Fees Involved When Deciding How to Pay Their Mortgage

Consumers, like Plaintiffs-Appellants, knowingly elect to use a payment method for which they will be charged a convenience fee. Mortgage servicers generally offer borrowers many ways to make a monthly loan payment, including:

• Mailing a check;
• Automatic withdrawals from the borrower’s checking account (ACH);
• Online through a portal or website;
• In-person at a branch; or
• Over the phone through an automated system or a live agent. 

Most of these options are offered without cost. For example, Plaintiffs-Appellants could have paid by mail without incurring a fee. 

Convenience fees also are not assessed without the borrower’s knowledge and consent. Rather, the fact and amount of the convenience fee are disclosed to borrowers before they elect to continue with that payment method. Often, borrowers are also reminded of the free alternatives before they make that election. 

Mortgage servicers are not obligated to offer expedited payment methods, such as online and phone pay methods. Even though typical mortgage agreements do not require those options, many mortgage servicers (like Carrington) choose to make them available for the borrowers’ benefit. But those expedited options come with costs to the mortgage servicer. They often require the use of a third-party payment processing vendor, such as Western Union or (as in Carrington’s case) Speedpay. Among other costs, the mortgage servicer typically needs to hire and train customer service agents to receive payments over the phone and/or hire computer programmers to build and maintain the systems needed to accept payments online or through interactive-voice-response technology. 

Mortgage servicers developed expedited payment processing services in response to borrowers’ demand for convenient alternative payment options. Penalizing mortgage servicers by eliminating their ability to charge clearly disclosed fees for those services—ones they are not required to provide—will at a minimum reduce the incentive to offer such options, limit important consumer choices, and deter future servicing innovations that benefit borrowers.

Such expedited payment processing options also enable borrowers to avoid the more costly consequences of late payments. Regardless of the payment method they choose, borrowers must ensure that they remit their payments early enough so that they are received by their due date. If a borrower misses a payment deadline, the loan is deemed delinquent or in default. This can subject borrowers to late fees, adverse credit reporting, and other costs of delinquency. See F.T.C., Trouble Paying Your Mortgage or Facing Foreclosure? (2021) (“even one late payment can negatively affect your credit score,” which “affects whether you can get a new loan or refinance your existing loan—and what your interest rate will be.”).

It is standard in the industry for late fees to be approximately 4-5% of the payment due. Borrowers whose payments otherwise would be late can make a last-minute payment by phone. Electing that option, with the fully disclosed modest convenience fee, leaves them far better off financially than incurring the considerably more expensive late fee (not to mention avoiding adverse credit reporting which can adversely impact the consumer in even broader ways). For example, Appellant Thomas-Lawson’s monthly payment was $1,462.31, and the applicable late charge was 4%. (See Plaintiffs-Appellants Excerpts of Record, at ER-190-91.) Accordingly, if she paid late, she would incur a $58.49 fee—much higher than the $5 convenience fee she was charged. (See id.) 

Further, these expedited mortgage payment methods tend to be used by a small percentage of borrowers (due to the number of free alternatives), and are used most frequently by the same customers who are paying on the last day of a grace period before a late fee applies. These expedited payment methods, for which servicers incur additional processing costs and charge a modest convenience fee, benefit those customers tremendously, rather than damaging them.

Download the amicus brief to read the full text.