In August of 2018, I published a Back to Basics blog in the form of a test or challenge. I named 13 fees and challenged you to respond as to whether each was or was not a finance charge. If you didn’t take that challenge then, you may want to now. See here.
One fee that I did not address in that blog is the transactional fee assessed in connection with the use of a debit card or ACH payment. For many years, there was uncertainty as to whether such a fee could be passed along to the consumer; and, if it was, should it be considered a finance charge. The first issue seems to be a matter of state law, while the second is federal law.
In recent years, the State of Alabama Banking Department for one, has opined that a fee assessed to the consumer in connection with the use of a debit card or ACH to make a payment, is permissible under the stated conditions of the opinion. The conditions include:
- The processing fee to be paid by the consumer must be paid directly to the third-party processor.
- The acceptance of electronic payments by the creditor must be voluntary, not mandatory.
- The creditor must continue to offer to the consumer a convenient method for making payments that does not result in a processing fee—such as taking payments in cash, checks, or money orders.
- The charge related to the electronic payment may not exceed the actual charge assessed by the third-party processor; that is, the processing fee cannot be a profit center for the creditor.
- Before accepting payment by a debit card or ACH, the creditor must disclose the cost of the processing fee to the consumer both verbally and in writing.
- The creditor must obtain a “no-objection” letter from the Bureau of Loans.
Once you have crossed the hurdle of being able to accept debit card or ACH payments, then the charge itself should be analyzed under the rubric of the definition of a finance charge.
Since the charge is not a condition of obtaining credit, nor a charge incident thereto, it does not seem to fall within the Truth-In-Lending Act or Regulation Z’s definition of a finance charge. And, in Alabama at least, if the charge is not a finance charge for TILA purposes, then it is not a finance charge under Alabama law either.
Good enough…at least until the CFPB weighs in with its final Small Dollar Loan Rule and any limitation imposed on ACH transactions by the Leveraged Payment Mechanism concept. See last month’s blog here for a discussion of Leveraged Payments.
Please Note: This is the one hundred eleventh blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking here.