Terry E. Miller, Esquire
Dear Ms. Miller:
This is in response to your letters to the Secretary of the Commission and to John LeFevre of this office seeking, respectively, a formal Commission advisory opinion and an informal staff advisory opinion on an issue under the Fair Debt Collection Practices Act.
Under Part 1.1(a) of the Commission's Procedures and Rules of Practice, 16 C.F.R. 1.1(a), a person may request advice from the Commission with respect to a proposed course of action. The Commission will generally provide an advisory opinion only if the matter involves a substantial or novel question of fact or law and there is no clear precedent of the subject matter or the request is of significant public interest. 16 C.F.R. 1.1(a)(1),(3). Because your request seems not to involve a contemplated course of action that is proposed to be pursued, but instead concerns activities that are apparently already being conducted by certain debt collectors, we feel that it is not appropriate for a formal Commission advisory opinion. Moreover, as discussed more fully below, we doubt that the matter involves a question for which there is not adequate guidance in the law. For these reasons, we are answering your request solely as an informal staff advisory opinion.
Your request asks whether the Debt Collection Act, 31 U.S.C. S§3717-3718, permits the addition of a collection fee to the underlying debt being collected by a debt collector pursuant to a federal contract. Specifically, you note that Section 808(1) of the Fair Debt Collection Practices Act, 15 U.S.C. 1692f(1) (FDCPA), prohibits "the collection of any amount (including any... fee... incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law." Section 3718(b) of the Debt Collection Act specifically provides that a fee charged "to recover indebtedness owed the United States Government is payable from the amount recovered." You ask whether this latter provision from the Debt Collection Act can be said to constitute the "law" under Section 808(1) of the FDCPA that permits collection of a fee over and above the amount of the original indebtedness.
We are of the opinion that Section 3718(b) does not authorize, either by its terms or by necessary implication, the assessment by debt collectors of an add-on fee for collection of debts owed to the federal government. The section seems intended only to permit the deduction "from the amount recovered" of the collector's fee (however determined), notwithstanding a provision of general applicability (31 U.S.C. 3302(b)) that would otherwise require a collector to "deposit the money ...without deduction for any charge..." Thus, Section 3718(b) seems more a procedural or "housekeeping" provision than a specific substantive authorization for add-on collection fees. We must therefore look elsewhere to determine whether such fees are specifically authorized by law.
You provided, at my request and subsequent to your requests for advisory opinions, a copy of GSA solicitation FCGA-S2-SS201-N, a representative solicitation for debt collection services in connection with payment of delinquent debts owed to the federal government. Although the solicitation speaks in terms of a "contingent fee,"(1) the term does not necessarily imply an add-on fee. Indeed, the term, both in general usage and in the context of the Debt Collection Act, primarily identifies the conditional nature of the payment. The Debt Collection Act was intended to permit the government not only to contract with private debt collectors for the collection of debts owed to the federal government, but also to permit the government to make payment to collectors on the basis generally applicable in the industry, that is, dependent or contingent upon the amounts actually collected. Thus, the GSA solicitation provides that the collector "shall be paid its awarded contingent fee based on the amount-collected" by the debt collector (Paragraph 11.4, at page 43).
The "contingent fee" provided for in the GSA solicitation is clearly an add-on fee. The solicitation notes that, when the collector receives the accounts for collection, "its contingent fee will either have been added to the amount of the debt by the ...agency or will be added to the amount of the debt by the [collector] when it receives the accounts." (Id.) The solicitation specifically notes that the collector may not collect a fee more than permitted by "state law." The solicitation provides extensive elaboration of the calculation of the add-on fee.
From the information available to us, it appears that although an add-on fee is contemplated by and authorized through Section 3717(e) of the Debt Collection Act, Section 3717(g)(1) serves to prohibit added charges in debts covered by the FDCPA (i.e., consumer debts). Section 3717(e) of the Debt Collection Act specifically permits assessment of "a charge to cover the cost of processing and handling a delinquent claim." It seems only reasonable that charges to recover indebtedness are included within the costs of processing and handling.
As your inquiry notes, however, the authorization of added charges in Section 3717 "does not apply if a statute ...prohibits ...assessing charges..." 31 U.S.C. S 3717(g)(1). Section 808(1) of the FDCPA is clearly such a statute. It prohibits the collection "any amount (including any... fee...) unless such amount is expressly ...permitted by law." 15 U.S.C. 1692f(1). But for the proviso of Section 3717(g) of the Debt Collection Act, Section 3717(e) might indeed be such a law expressly permitting added charges on these debts. But Section 3717(g) clearly contemplates some limitation on the powers granted in 3717(e). Thus, a collector would be permitted, under Section 3717(e) of the Debt Collection Act, to assess add-on collection fees to debts placed with it by the government for collection only if those debts did not constitute consumer debts within the meaning of Section 803(5) of the FDCPA.
In answer to your question, therefore, we believe, based on the authority that you cited, that Section 3717(e) of the Debt Collection Act is not a law, contemplated by Section 808(1) of the FDCPA, that permits the assessment of add-on collection fees to debts otherwise covered by the FDCPA. This letter reflects the current enforcement position of the staff and is not binding on the Commission. If we can offer any further assistance, please do not hesitate to contact us.
Very truly yours,
Christopher W. Keller
1. E.g., at pages 8, 43-46, 95 of the solicitation. The legislative history of the Debt Collection Act notes that the Act permits collection of debts on a "contingent fee basis" (83 U.S. Code Cong. and Admin. News 1615-1616).