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CFPB issues warning: Don’t trick consumers into using costly pay-by-phone option

Cites concern about companies misleading customers about payment options

Attention financial services companies: If you offer a pay-by-phone option and steer customers to said option unnecessarily, the Consumer Financial Protection Bureau may come knocking.

The CFPB said Monday that it is issuing a warning to all companies under its supervision because the agency is concerned about companies “tricking” consumers into using expensive pay-by-phone options.

In an announcement, the CFPB said that its concern comes from companies potentially misleading customers about the purpose and amount of certain pay-by-phone fees and/or keeping those customers “in the dark” about cheaper payment options.

“The Bureau is warning companies about tricking consumers into more expensive fees when they pay bills by phone,” CFPB Director Richard Cordray said in a statement. “We are concerned that companies are misleading consumers about pay-by-phone fees or keeping them in the dark about much cheaper or no-cost payment options.” 

As the CFPB notes, many companies offer the option to pay bills by phone using an automated system or by speaking with a live customer service representative.

In some cases, the company may charge different pay-by-phone fees depending on how the customer wants to pay, i.e. by electronic check, debit card, or credit card.

Additionally, the company may charge an additional fee to expedite phone payments, although many companies offer no-fee or lower-fee pay-by-phone options that post after a delay.

The application of those fees and companies potentially steering customers into using those services over cheaper options has the CFPB concerned, the bureau said.

Specifically, the CFPB said that its investigations identified several “harmful” practices that companies have engaged in, including:

Misleading consumers about pay-by-phone fees: The Bureau is concerned about companies misrepresenting the purpose and amount of pay-by-phone fees, which can result in consumers incurring charges for services they don’t need. 

Keeping consumers in the dark about much cheaper payment options: Some companies do not disclose their fees in writing upfront to consumers. Instead, they may depend solely on phone representatives to disclose the relevant fees to consumers before the charge is imposed. These representatives may then fail to inform consumers about significant price differences between available pay-by-phone options. This may substantially harm consumers who wind up using much more expensive options because they are not informed that significantly cheaper options are available.

One of the examples cited by the CFPB of a company misleading customers about pay-by-phone options is Green Tree Servicing, which was the target of a CFPB enforcement action back in 2015 and fined $63 million.

According to the CFPB, Green Tree failed to honor modifications for loans transferred from other servicers, demanded payments before providing loss mitigation options, delayed decisions on short sales, and harassed and threatened overdue borrowers.

At the time, the federal regulator also accused Green Tree of “using deceptive tactics to charge consumers convenience fees.”

Specifically, the CFPB alleged that Green Tree lied to consumers to get them to pay $12 for its pay-by-phone service, called Speedpay. 

According to the Bureau, Green Tree representatives pressured consumers to use the service by telling them that Speedpay was the only available payment method to ensure the payment would be received on time.

But that wasn’t the case. In fact, Green Tree accepted other payment methods that did not involve a fee, which consumers could have used to make a timely payment.

The CFPB noted in its compliance bulletin that it “does not mandate” that companies inform consumers about pay-by-phone options and fees in “any particular way,” but the CFPB said that it “expects” companies to review their practices for potential risks of violating consumer financial laws and address any issues. 

“Appropriate risk management and due diligence can help companies avoid harming consumers through unlawful practices and help them comply with federal laws,” the CFPB said.

“The CFPB recommends that financial institutions take steps to ensure that they are following laws related to pay-by-phone fees,” the CFPB continued. “Companies should review state and federal laws to confirm they can charge such fees, and review their policies and procedures. Companies should also review consumer complaints about fees that are charged.”

The CFPB closes its warning by stating that it will continue to monitor the practices of companies that assess pay-by-phone fees for potential violations. “The Bureau will use all appropriate tools to assess whether supervisory, enforcement, or other actions may be necessary,” the CFPB concludes.

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