We do not believe that Regulation Z requires you to disclose an online payment fee in the account opening disclosures, but we recommend considering disclosing the fee due to the federal banking regulators’ increasing scrutiny of add-on fees like online payment and convenience fees. It may be possible to fully disclose an online payment fee when the borrower chooses this payment option, but we recommend reviewing the risks outlined below before charging online payment fees.

We do not believe that Regulation Z requires your HELOC account opening disclosures to include fees charged for online payments. The official interpretations for the regulation state that you are not required to disclose “a fee charged for arranging a single payment on the credit account, upon the consumer’s request (regardless of how frequently the consumer requests the service), if the credit plan provides that the consumer may make payments on the account by another reasonable means, such as by standard mail service, without paying a fee to the creditor.”

We are not aware of any requirements under Regulation Z to disclose such fees for other loans covered by the regulation, such as closed-end mortgage loans. However, outside of its disclosure requirements, Regulation Z prohibits creditors and third-party payment processors from charging fees on credit card accounts for making payments by a particular method, such as by phone or by electronic means, unless the payment method involves an expedited service.

Even if Regulation Z does not require account opening disclosures to include online payment fees, we recommend considering the risks of an unfair, deceptive, or abusive act or practice (UDAAP) finding related to charging this fee. The CFPB has identified UDAAP risks related to charging phone payment fees, such as misrepresenting the purpose of pay-by-phone fees and failing to disclose that non-expedited payments could be processed without a fee. In 2022, the CFPB reported that it continued to find UDAAP violations related to phone payment fees that were not fully disclosed to customers and that loan servicers were reimbursing all customers who had paid phone payment fees that “were not disclosed while processing payments over the phone.” Similarly, we believe that failing to disclose the online payment fee could raise UDAAP risks if your customers claim that the lack of disclosure led them to believe that paying online would be free.

The CFPB also has issued an advisory opinion under the Fair Debt Collection Practices Act stating that debt collectors cannot collect online payment and other pay-to-pay fees unless they are “expressly authorized by the agreement creating the debt or expressly authorized by law.” Although your bank is not acting as a debt collector when charging a fee for online payments, the Illinois Interest Act also provides that loan-related fees must be agreed on by the bank and the borrower. Consequently, we recommend reviewing your loan and mortgage agreements to confirm that your bank is authorized to charge online payment fees.

Also, the CFPB’s 2022 request for information scrutinizing “junk fees” expressly mentions fees for online loan payments, particularly those charged for a servicer’s bill pay service. We believe your bank’s online payment fees merit special caution because your bank owns the service provider charging the fee, and your bank could be viewed as indirectly profiting from the “junk” fees charged for online payments.

For resources related to our guidance, please see:

• Regulation Z, 12 CFR 1026.6(a) (“Account opening disclosures. (a) The requirements of this paragraph (a) apply only to home-equity plans subject to the requirements of § 1026.40. A creditor shall disclose the items in this section, to the extent applicable: . . . (2) Other Charges. The amount of any charge other than a finance charge that may be imposed as part of the plan, or an explanation of how the charge will be determined.”)

• Regulation Z, Official Interpretations, Paragraph 6(a)(2), Comment 2 (“The following are examples of charges that are not ‘other charges’: . . . x. A fee charged for arranging a single payment on the credit account, upon the consumer’s request (regardless of how frequently the consumer requests the service), if the credit plan provides that the consumer may make payments on the account by another reasonable means, such as by standard mail service, without paying a fee to the creditor.”)

• Regulation Z, 12 CFR 1026.10(e) (“Limitations on fees related to method of payment. For credit card accounts under an open-end (not home-secured) consumer credit plan, a creditor may not impose a separate fee to allow consumers to make a payment by any method, such as mail, electronic, or telephone payments, unless such payment method involves an expedited service by a customer service representative of the creditor. For purposes of paragraph (e) of this section, the term ‘creditor’ includes a third party that collects, receives, or processes payments on behalf of a creditor.”)

• CFPB, Compliance Bulletin 2017-01, Phone Pay Fees (July 31, 2017) (“In another public enforcement action, the Bureau alleged that a mortgage servicer engaged in a deceptive practice by misrepresenting to consumers, both expressly and by implication, that a particular pay-by-phone option was the only available payment method, or that consumers must use the particular pay-by-phone option in order to avoid negative consequences, including incurring a late fee or even facing foreclosure. In fact, the servicer accepted several payment options free of charge. In many instances, consumers could have used these other payment methods to make timely payments and avoid late fees.”)

• CFPB, Supervisory Highlights, Issue 28, Fall 2022 (“Consumers lacked understanding of the material costs of the phone pay fees because servicer representatives failed to inform consumers of the fees during the phone call. And general disclosures, provided prior to making the payment, indicating that consumers ‘may’ incur a fee for phone payments did not sufficiently inform consumers of the material costs. Servicers took unreasonable advantage of this lack of understanding because the cost of the phone pay fee was materially greater than the cost of other payment options and servicers profited from collecting the fees. In response to these findings, servicers are reimbursing all consumers who paid phone payment fees when those fees were not disclosed while processing payments over the phone.”)

• CFPB, Advisory Opinion, Pay-to-Pay Fees, 87 Fed. Reg. 39733 (July 5, 2022) (“The Consumer Financial Protection Bureau (CFPB) issues this advisory opinion to affirm that this provision prohibits debt collectors from collecting pay-to-pay or ‘convenience’ fees, such as fees imposed for making a payment online or by phone, when those fees are not expressly authorized by the agreement creating the debt or expressly authorized by law. This advisory opinion also clarifies that a debt collector may also violate section 808(1) when the debt collector collects pay-to-pay fees through a third-party payment processor.”)

• Interest Act, 815 ILCS 205/4(1) (“It is lawful for a state bank or a branch of an out-of-state bank . . . to receive or to contract to receive and collect interest and charges at any rate or rates agreed upon by the bank or branch and the borrower. . . .”)

• Illinois Banking Act, 205 ILCS 5/5e(b) (“The establishment of account service charges and the amounts of the charges not otherwise limited or prescribed by law is a business decision to be made by a bank according to prudent business judgment and safe and sound operating standards. In establishing account service charges, the bank may consider, but is not limited to considering, the costs incurred by the bank, plus a profit margin, for providing the service, the deterrence of misuse of the bank’s services, the establishment of the competitive position of the bank in accordance with the bank’s marketing strategy, and the maintenance of the safety and soundness of the bank.”)

• CFPB, Request for Information Regarding Fees Imposed by Providers of Consumer Financial Products or Services, 87 Fed. Reg. 5801, 5802 (February 2, 2022) (“Mortgages. . . . Even aside from inflated and padded fees rolled into the mortgage at closing, homeowners can find themselves forced to pay fees for making payments over the phone or online or even for the servicer’s bill pay service.”)

• CFPB, Request for Information Regarding Fees Imposed by Providers of Consumer Financial Products or Services, 87 Fed. Reg. 5801, 5802 (February 2, 2022) (“Other Loans. The CFPB is interested in other loan origination and loan servicing fees, including for student loans, auto loans, installment loans, payday loans, and other types of loans. For example, some servicers charge fees to reschedule payment dates or make online or phone payments.”)