Pass-Through Online Payment Processing Fees are Exceptions to FDCPA, Says N.D. Ill.

Questions about payment processing fees come up often. What type of processing fees can a consumer be charged? At what point does a debt collector cross into the forbidden territory? A case out of the Northern District of Illinois recently reviewed the question.

In Alleman v. Collection Professionals, Inc., No. 1:17-cv-9294 (N.D. Ill. Oct. 29, 2019), the consumer alleged that a $3.00 service fee assessed by the debt collector's online payment processor violated the Fair Debt Collection Practices Act (FDCPA) and Illinois consumer protection laws. The consumer entered a service agreement with a medical provider, which ultimately led to the underlying debt in collections.

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The service agreement contained a clause that stated the consumer would "pay the balance on the account plus the late charge fee, all reasonable collection costs, and reasonable attorney fees." The parties disagree about the contract's meaning of "reasonable collection costs" and whether the $3.00 online payment service fee fell into the scope. The consumer argues that the service fee was an incidental cost that is not itself related to the debt, which the FDCPA prohibits. 

The court found that the fee is not connected to the debt as it is charged for all online payments regardless of the size of the debt or the payment. Since it was the debt collector—rather than the creditor—that incurs the cost of electronic payments and that cost is passed to the consumer rather than through to the creditor, the court found that it might be problematic. 

However, the court ultimately granted the debt collector's motion for summary judgment, finding that the service fee fell under the pass-through fee exception to the FDCPA's definition of "collection," as stated by the court in Acosta v. Credit Bureau of Napa County, No. 14-cv-8197 (N.D. Ill. 2015). The court synthesized definitions from precedential case law and found that "pass-through convenience fees are charges initiated by a credit card provider from which the collection agency earns no profit itself." Since that is exactly what occurred here—the online payment processor, not the debt collector, charged and kept the entire service fee. The debt collector did not profit from the service fee. 

The court states:

As explained above, under this reading, there is no genuine issue of material fact about whether CPI’s cost is a pass-through cost, since its convenience fee account always operated at a loss in the relevant period. As a result, the convenience fee is at least a partial pass-through cost, and thus protected from liability under the FDCPA, because CPI did not attempt to collect an incidental cost; instead, CPI merely sought to pass through a cost, not collect an incidental obligation itself. Had Alleman chosen a different method of payment, CPI would not have charged Alleman anything, because BillingTree would not have charged CPI to process her payment. As a result, we grant the Defendant’s motion for summary judgment...

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