TL;DR: The Consumer Financial Protection Bureau (CFPB) fined Nissan Motor Acceptance Corp. (NMAC) $5 million for unfair, deceptive, and abusive acts and practices (UDAAP) related to non-compliant convenience fees. NMAC was held responsible for its third-party processor’s failure to disclose fee variations or offer a free payment alternative. This cautionary tale highlights the immense financial and regulatory risks businesses face when they partner with payment processors that do not fully abide by CFPB regulations, card brand rules, and the Fair Debt Collection Practices Act (FDCPA).
Offering your customers multiple ways to pay is essential, and many businesses offset the cost of processing those payments by utilizing convenience fees. However, if your convenience fee program isn’t strictly compliant, it can become a multi-million dollar liability.
A stark example of this risk is the Consumer Financial Protection Bureau (CFPB) consent order against Nissan Motor Acceptance Corp. (NMAC), the auto financing subsidiary of Nissan’s North America division. The CFPB ordered NMAC to pay $4 million in civil penalties and refund $1 million to its customers due to numerous violations of the Consumer Financial Protection Act’s (CFPA) prohibition against unfair, deceptive, and abusive acts and practices (UDAAP).
What Triggered the $5M Consent Order?
NMAC accepted payments over the phone by utilizing a third-party payment processor. Through this processor, the company charged consumers a $5 fee for electronic checks or in-network debit cards. However, if a consumer used a credit card or an out-of-network debit card, they were charged a massive $12.95 fee.
Crucially, consumers who chose to pay by credit card or an out-of-network debit card were never informed of the alternative, cheaper payment options available to them.
As a result, customers ended up paying significantly more than they would have if they had known about the difference in fees and had the opportunity to select the lower-fee option.
Why Was NMAC Held Responsible for Their Processor’s Mistakes?
The most critical lesson from this case is that your business is ultimately responsible for your payment processor’s compliance. NMAC was deemed entirely responsible for the third-party payment processor’s neglect of compliance requirements. Consequently, NMAC was ordered to refund $1 million of customers’ fees out of its own pocket. This case highlights exactly how crucial it is to select payment service providers and software partners that comprehensively understand and abide by all regulatory requirements.
At Payscout, we have always maintained that a violation of card brand rules is not just an administrative issue; it can directly result in a UDAAP claim under the Fair Debt Collection Practices Act (FDCPA) or an enforcement action brought by the CFPB.
What Were the Specific Convenience Fee Violations?
In the NMAC case, the CFPB identified two major compliance failures:
- Varying Fees for the Same Channel: The business charged different fee amounts based on the card type. Card brand rules clearly dictate that all payment types taken via a common channel must carry the exact same flat fee.
- Failure to Provide Proper Disclosures: The processor failed to provide appropriate disclosures—which must include notifying the consumer of the availability of a free payment option—and failed to obtain explicit consent from the consumer prior to charging the convenience fee.
How Can You Protect Your Business from Compliance Fines?
Currently, many payment service providers—especially in the highly regulated Accounts Receivable Management (ARM) industry—are offering convenience fee solutions that are simply not compliant. Utilizing these “quick fix” solutions dramatically increases your risk of consumer lawsuits, significant federal fines, and the potential of your merchant accounts being completely shut down.
At Payscout, we care deeply about compliance. All of our payment models, including our 360° Fee-Free Payments, are designed with FDCPA, CFPB, state law, and strict card brand compliance built directly into the foundation. We are dedicated to ensuring that we keep your business fully protected from liability at all times.
Don’t risk a $5M mistake. To ensure your convenience fee solution is fully compliant and legally sound, contact our team of experts today at sales@payscout.com or call 888.689.6088.
