Civil Litigation

Do Transactional Fees Paid to Third Parties Violate the FDCPA?

In Shami v. National Enterprise Systems, 2012 U.S. App. LEXIS 182349 (Dec. 27, 2012),  the United States District Court for the Eastern District of New York granted a debt’s collector’s motion for summary judgment of a putative class action.  In granting the motion for summary judgment, the Court found that the following facts were not in dispute: (1) National Enterprise Systems (“NES”) was a debt collector; (2) Bank of America referred the plaintiff’s account to NES for collection; (3) NES entered into an agreement with Internet Transaction Solutions (“ITS”) whereby ITS provided payment processing services that enabled consumers to make payments on accounts placed with NES via an automated telephone system or via the internet.  In a collection letter (the “Collection Letter”) from NES, consumers were advised that if they elected to make a payment through the automated telephone system or the internet, the consumer would be assessed transaction fees (the “Transaction Fees”).  Consumers were further advised in the Collection Letter that they were not required to use the automated phone system or the internet to make a payment on their account.  NES maintained that ITS retained the entirety of the Transaction Fees, sharing no part with NES.

The consumer filed a lawsuit against NES pursuant to the Fair Debt Collection Practices Act (the “FDCPA”).  More specifically, the consumer alleged that the Collection Letter violated the FDCPA by: (1) collecting an amount that was not authorized by contract or permitted by law; and (2) using false and deceptive means in the collection of debt by making a false representation that it was entitled to receive compensation for payment by the automated phone system or the internet.

In granting summary judgment for NES, the Court found that a fee does not violate the FDCPA where it is not paid to the debt collector, and is instead paid to a third-party in exchange for voluntarily utilizing a particular method of payment. The Court further found that the Collection Letter did not utilize false and deceptive means to collect a debt.  The Court held that reading the letter with “some care,” even the last sophisticated consumer would understand that there were payment options for which ha consumer would not incur a fee.

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