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Convenience Fees Not Allowed Without Consent in Debt Agreement

Posted on in Debt Collection

Convenience Fees Not Allowed Without Consent in Debt AgreementDebtors have multiple payment methods they can use to transfer money when repaying debts. Some forms of payment incur additional convenience fees, such as when debtors use credit cards or money orders. Creditors have at times formed agreements with the third-party vendors to share these convenience fees. However, they should examine state laws and their contracts with debtors before entering such agreements. Creditors and debt collectors are often prohibited by law from collecting convenience fees and may be punished for doing so.

Federal and State Law

The Fair Debt Collection Practices Act states that a debt collector cannot institute a fee that increases the amount a debtor owes unless:

  • The debt agreement authorizes the fee; or
  • State law permits the fee.

Late fees are often included in debt agreements, which makes them legal. However, convenience fees may not be included because they are normally instituted by third-party vendors as a cost for using their services. Illinois’ Collection Agency Act states that convenience fees must be included in a debt agreement in order for a debt collector to collect or request them. Many states have similar laws, though some do not have any laws addressing convenience fees.

Creditor Involvement

Debt collection agencies are most often the parties involved in using unauthorized convenience fees. Hiring a debt collection agency that is accused of unlawful practices may ultimately hurt a creditor’s ability to retrieve debts. However, creditors can also violate the law when they enter a fee sharing agreement. For instance, a debtor may opt to transfer money through a service provider such as Western Union. The service provider charges a convenience fee to the debtor for each money order sent to the creditor. The creditor has an agreement with the service provider to receive a percentage of the money from the convenience fee. Thus, the creditor is collecting an additional fee from the debtor, which may be illegal if the fee is not included in the debt agreement.

Avoiding Complications

Creditors should clearly explain the various methods debtors can use to submit payments, including those that may include a convenience fee by a third party vendor. However, the creditor must be careful when mentioning vendor fees so that it does not appear that the creditor will be collecting those fees. Even the suggestion of an unauthorized fee may be illegal.

Before charging any fees to a debtor, you should check the debt agreement to see which fees are expressly allowed. A Chicago debt collection attorney at Walinski & Associates, P.C., can review the legality of your collection requests. Schedule a consultation by calling 312-704-0771.


Illinois Creditors Bar Association Chicago Bar Association Illinois State Bar Association
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