Can a Collection Agency Add Fees on the Debt?
The Lowdown on Debt Collection Fees
Dealing with debt collectors can be a real headache – trust me, I’ve been there. They’re calling you at all hours, sending letters that make your heart race, and threatening to take you to court. But one of the most frustrating things? When they try to tack on extra fees to the amount you already owe.It’s a shady practice that happens way too often. You think you owe $500, but suddenly the debt collector is saying it‘s $700 because of “fees” and “interest charges.” Before you know it, that debt has ballooned out of control.So can they actually do that? Can a collection agency legally add fees to your original debt amount? The answer is…it depends. Confusing, I know – but stick with me here.There are federal laws like the Fair Debt Collection Practices Act (FDCPA) that prevent debt collectors from charging any ol’ fee they want. But there are also loopholes that allow certain charges in some situations.It’s a bit of a legal gray area, which is why I always recommend speaking to an experienced debt collection defense lawyer if you’re unsure about charges on your account. We’ll dive into the nitty-gritty details, but at the end of the day, it‘s better to be safe than sorry when it comes to shady debt collectors trying to nickel and dime you.
The Federal Laws on Debt Collection Fees
Let’s start with the big kahuna – the Fair Debt Collection Practices Act (FDCPA). This is a federal law that lays out rules for third-party debt collectors (the folks who buy your debt from the original creditor).Under the FDCPA, debt collectors can’t just make up fees willy-nilly. They can only collect:
-- The original debt amount
- Any interest or fees allowed by the original contract or state law
So if your credit card agreement said you’d be charged a late fee after 30 days of non-payment, the debt collector can include that fee when they buy your debt. Same goes for interest charges spelled out in the fine print.But they can‘t add random “service fees” or jack up the interest rate unless it was permitted in that original contract you signed. The FDCPA prohibits the “collection of any amount unless such amount is expressly authorized by the agreement creating the debt or permitted by law.”In other words, debt collectors have to play by the rules laid out in your original agreement with the creditor. They don‘t get to make up new fees as they go along.Now here’s where it gets tricky – the FDCPA only applies to third-party debt collectors, not the original creditor itself. So if Bank of America is still collecting on debt you owe them directly, they may be able to add certain fees and interest charges that a debt buyer couldn’t based on your card agreement.It’s a bit of a double standard, but that’s how the law is written. The creditor has more leeway with fees and interest than a debt collection agency would.
How Debt Collectors Might Justify Added Fees
Even with the FDCPA rules, debt collectors have found some creative ways to tack on extra charges. Here are a few common tactics:
Interest Charges
Like I mentioned, if your original credit agreement allowed for interest charges after a certain period of non-payment, debt collectors can keep adding that interest. So a $500 debt could quickly become $600 or $700 with enough time.
Collection Costs
Some creditors now put clauses in their contracts saying that if the debt goes to collections, you’ll be responsible for paying the debt collector‘s costs – things like phone calls, letters, court fees, etc. So they’ll add a percentage on top of the principal for “collection costs.”
-Attorney’s Fees
If a debt collector has to go through the trouble of taking you to court, some contracts allow them to add their attorney‘s fees and court costs to your total debt load. It’s a way to make the consumer bear the costs of litigation.
Convenience Fees
You’d think paying off a debt would be free, right? Not always – some debt collectors have started charging “convenience fees” if you want to pay online or over the phone. They try to justify it as covering processing costs.Now, all of these fees have to be allowed by the original creditor contract or state law. A debt collector can’t just start charging them out of the blue. But you can see how debts can creep up once fees and interest get piled on top.
How to Fight Back Against Illegal Debt Collection Fees
If you think a debt collector is trying to charge bogus fees not included in your original agreement, you’ve got a few options:
Demand Debt Validation
The FDCPA gives you the right to request debt validation within 30 days of first being contacted by a collector. They then have to provide evidence that the debt is legit and break down the fees and interest charges. If they can’t validate those extra costs, you can dispute them.
File a Complaint
You can file complaints about shady debt collection practices with the Consumer Financial Protection Bureau, Federal Trade Commission, and your state attorney general’s office. This creates a documented trail of the illegal fees.
-Talk to a Lawyer
Your best bet is to consult an experienced debt collection defense attorney. We know all the loopholes debt collectors use to pad debts with fees, and we can fight to get those charges removed if they violate the FDCPA or state laws.
Sue Them
Finally, the FDCPA allows consumers to sue debt collectors for illegal practices – including trying to collect inflated debt amounts. If you win, you could get up to $1,000 in statutory damages plus actual damages like emotional distress.At the end of the day, debt collectors have to play by the rules. They can’t just start making up fees left and right. But it’s up to you to understand those rules and hold their feet to the fire.Because trust me, shady debt collectors will try anything to make an extra buck off you. Knowing your rights is your best defense against getting nickeled and dimed to death.
The Debt Collection Laws Debt Collectors Don’t Want You to Know
We’ve covered the big federal laws like the FDCPA, but did you know there are also state laws that can restrict debt collection fees? Yep – it’s a whole extra layer of rules that debt collectors have to follow.For example, let’s take a look at New York’s debt collection laws. In addition to the FDCPA requirements, debt collectors in New York can only charge:
-- 25% of the first $1,000 of debt
- 20% of anything between $1,000 and $5,000
- 15% of anything above $5,000
So even if your original credit card agreement allowed for higher collection costs, a debt collector would be capped at those percentages in New York.Other states have similar laws limiting collection fees, interest rates, and other charges. Some even prohibit convenience fees for things like paying online or over the phone.The point is, debt collectors have to follow both federal and state laws on what they can charge you. Violating either set of rules could open them up to penalties and lawsuits.
Common Defenses Against Improper Debt Collection Fees
If a debt collector does try to charge you bogus fees, there are a few common legal defenses you can use, including:
Lack of Standing
This argues that the debt collector doesn‘t have the proper documentation to prove they actually own the debt and can collect on it. Without that chain of title, any fees they try to charge could be invalid.
Statute of Limitations
Depending on your state, there may be a time limit for collecting certain types of debt. If that statute of limitations has passed, you may be able to argue the debt collector can‘t charge any fees at all.
Unauthorized Fees
As we‘ve covered, if the fees the collector is charging weren‘t authorized by the original creditor agreement or state law, that’s a violation of the FDCPA. You can use that as a defense.
Excessive Fees
Even if some collection costs were allowed, you may be able to argue that the amounts the debt collector is charging are excessive and unreasonable.
Bankruptcy Discharge
If you went through bankruptcy and that particular debt was discharged, you may be able to argue that the debt collector has no grounds to charge any fees whatsoever.The key thing is to consult an experienced debt collection lawyer in your state. We know all the potential defenses to use against improper fees and can build the strongest case possible.Because at the end of the day, these debt collectors are banking on consumers not knowing their rights or having the resources to fight back. Having a skilled legal team in your corner can make all the difference.
How to Avoid Shady Debt Collection Fees in the First Place
Of course, the best way to deal with debt collection fees is to avoid them entirely. While that’s often easier said than done, there are some proactive steps you can take:
Respond Quickly to Debt Letters
The quicker you respond to any debt collection notices, the less time there is for interest and fees to accumulate. Ignoring things only allows that debt to keep growing.
Negotiate a Settlement
If you can afford to pay a lump sum, debt collectors are often willing to accept a settlement for a percentage of what you owe. This prevents future fees from being added.
Ask for a Repayment Plan
Can’t pay it all at once? See if the debt collector will work out a payment plan where you can pay off the principal without accumulating extra interest and fees.
Dispute Errors Early
If you spot fees or charges that seem incorrect right away, dispute them in writing with the debt collector. The sooner you can get it resolved, the better.
Know Your Rights
Make sure you understand what debt collectors can and cannot do under the FDCPA and state laws. That knowledge is power when it comes to fighting unfair practices.At the end of the day, a little proactive work can go a long way toward preventing that debt amount from spiraling out of control. Because once those interest charges and shady fees start piling up, it becomes an uphill battle.