On January 9, the California Department of Financial Protection and Innovation (DFPI) issued an order against a consumer financing platform that enables merchants to offer installment contracts to their customers. The platform was ordered to pay a $50,000 penalty for allegedly not disclosing information about possible convenience fees assessed to its customers’ accounts. As part of the order, the platform is required to disclose this information to consumers in the future.
According to DFPI’s order, the platform contracts with a third-party servicer for the installment contracts that it originates, and this servicer informs consumers that their account has been assigned to them before their first payment is due. As part of that communication, the servicer provides consumers with information on how to make payments without incurring any fees, as well as information on other ways to make payments that will incur fees (e.g., making payments online or over the phone).
Although consumers entering into contracts on the platform had a fee-free method to make payments, and the servicer disclosed the convenience fees to the customers, the platform failed to disclose potential optional convenience fees a consumer might later incur, according to the order. As a result, consumers learned of these fees only after they were already contractually bound to pay them. The DFPI concluded, that this practice of not disclosing the fees before consumers entered into the contracts was deceptive, material, and in violation of the California Consumer Financial Protection Law (CCFPL). DFPI noted in a statement that this order is part of a broader effort to protect consumers from hidden fees using the CCFPL.
DFPI’s order comes as California is preparing to implement a new piece of legislation signed into law last October that bans hidden junk fees often tacked on to transactions for a variety of goods and services. This new law goes into effect in July and requires businesses to advertise all essential charges to ensure customers are not exposed to deceptive business practices; it bans the practice of advertising a certain price before tacking on mandatory charges that are controlled by the business (i.e., not taxes or fees imposed by the government on the specific transaction).