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Consumer protection bureau warns about pay-by-phone fees

Consumers charged unnecessary fees for paying their own bill, CFPB found

By  |  Published: July 31, 2017

CFPB warns companies against expensive pay-by-phone fees

Are you paying unnecessary fees just for the convenience of paying your bill by phone?

The federal government’s consumer watchdog agency issued a warning Monday about companies charging unnecessary pay-by-phone fees.

“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,” Consumer Financial Protection Bureau Director Richard Cordray said in a statement.

Unnecessary expedited payment fees
For example, credit card issuer Citibank and its store card unit misled customers into paying a $14.95 phone payment fee by calling it a “processing charge,” the CFPB’s bulletin said. In fact, the fee was for posting the payment the same day – free phone payments were available for people who didn’t need rapid payment processing.

Citi unit Department Stores National Bank collected $23.9 million through the fee over several years starting in 2009, according to the bank’s 2015 consent order with the CFPB.  About 1.8 million delinquent cardholders were dinged for the fee, although most didn’t need the expedited service, the agency said.

In another case, mortgage company Green Tree Servicing LLC often pressured customers to make immediate payments by phone, sometimes falsely saying that foreclosure would result without the immediate payment. The company often represented that its Speedpay service, which carried a $12 convenience fee per transaction, was the only available payment method, according to a 2015 complaint filed by the CFPB and the Federal Trade Commission. 

QUESTIONS TO ASK ABOUT PAY-BY-PHONE FEES

Paying a fee to expedite the posting of your payment can make sense to avoid a late fee, and a black mark on your credit report. But in general, beware of fees connected to paying your bill, consumer experts say.

Questions to ask:

  • What is the fee for payment by phone?
  • Are there lower-cost or no-cost options?
  • Do I need to pay a fee to expedite my payment and avoid a late fee?
  • Can I make an electronic payment by debit card, credit card or ACH instead?
QUESTIONS TO ASK ABOUT PAY-BY-PHONE FEES

Paying a fee to expedite the posting of your payment can make sense to avoid a late fee, and a black mark on your credit report. But in general, beware of fees connected to paying your bill, consumer experts say.

Questions to ask:

  • What is the fee for payment by phone?
  • Are there lower-cost or no-cost options?
  • Do I need to pay a fee to expedite my payment and avoid a late fee?
  • Can I make an electronic payment by debit card, credit card or ACH instead?

Think twice before paying by phone
“It sounds like most times the issue comes up in a collection scenario rather than when a consumer is deciding how to pay a particular recurring bill,” said Edgar Dworsky, founder of Consumerworld.com. A former Massachusetts assistant attorney general in consumer protection, Dworsky said people should think twice before agreeing to pay a fee just for the privilege of paying their bill. Usually payment by credit or debit card or a bank transfer should be available.

“If the caller seems to be insisting that only phone payments are accepted, find out what fees are associated with it,” Dworsky said in an email response to questions. “Ask if there are other phone payment options where there is no fee.” And make sure you’re not being scammed for your banking information or a debt you don’t owe.

If you truly face an emergency, such as being late with a mortgage payment, “It may well be worth it to pay an expedited fee by phone or other mechanism,” said Joseph Ridout, spokesman for Consumer Action, a nonprofit consumer advocacy and education group in San Francisco. “But consumers should never be hoodwinked about the purpose of the extra fee.”

For routine bill payments, Ridout said he recommends using a bank bill payment system, rather than turning over access to your bank account one or more companies. “You might be better off having those payments organized under one roof, and push those payments out from your bank,” he said.

CFPB to watch for unlawful fees
The CFPB said it will be watching financial services companies that it regulates to see that pay-by-phone fees are charged lawfully. It said companies should review state and federal laws to make sure fees are permitted, and check customer complaint records for signs of problems.

Many companies offer pay-by-phone via an automated system or by speaking with a company representative, the agency said. Companies often charge different fees for the service depending on the type of payment – electronic check, debit card or credit card – or for expedited payment. Often low- or no-fee options are available.

The consumer bureau examines and supervises large banks, debt collectors, payday lenders, private student lenders and other financial services companies.

See related: Convenience fees: When is it OK to charge extra for payinig by card?, Rewards cards draw a surge of complaints to CFPB

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Updated: 08-23-2017

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