Can a Collection Agency Charge More Than What I Originally Owed?

Here's a real example of something we here pretty often from clients:

"I have a debt that I am trying to pay off. On my credit report it is showing a balance on $190, but when I contacted the company to pay this off they are now saying that I owe them $755.06. Can the company collect on the amount that is not being reported on my credit reports?"

You'd probably assume that once a debt is charged off and handed over to a debt collector, the balance won't change. In fact, quite a few people intentionally allow accounts to land in collections in the hopes that they can settle the whole thing for less than what's owed. So it's pretty upsetting to learn that yes, in certain circumstances debt collectors are within their rights to continue adding fees to your debt after they've purchased it. 

How to determine what you actually owe to a debt collector

While it's possible that the debt collector has been within their rights to add fees to your debt, you shouldn't just take their word for it. The first thing you need to establish is the details of where the debt came from, how much it was originally, and how it got to be the amount it is now.

The Fair Debt Collection Practices Act (FDCPA) requires that all debt collectors provide written validation of the debt they're attempting to collect. This means they need to give you all of that information within five days of making first contact with you.

If you don't think the amount of debt is correct, you can send a written dispute to the collection agency. All collection activities should stop until they’ve responded to your dispute.

However, once they've provided you with a document outlining all of the fees and interest charges that caused your debt to continue swelling, post-charge-off, the ball is back in your court. Which leads to the next question: are those fees and interest charges legal?

Unfortunately, yes, they are.

Collection agency fees - what are legal?

Debt collectors can charge you interest, up to the maximum amount outlined in the original contract. It’s generally listed as the “penalty rate” in credit card contracts and it can soar past 30 percent, depending on the creditor.

Often states will cap the amount of interest a debt collector can charge, but those caps are for accounts that do not explicitly state a maximum interest rate (like a medical debt).

If the collector has validated the debt and shown you that the increased charges are legitimate, your next best step is to either work out a repayment plan or ask about the possibility of removing the extra fees in exchange for a full, one-time payoff of the original debt. You need to remember that debt collectors purchase old debts for pennies on the dollar. If the debt was $190, they likely purchased it for 60 percent of that. If the debt’s been sold multiple times, this collector likely paid even less. They may say no, but often they’ll be happy to collect what they can and be done with your account.

If you're dealing with significant collection debt, talk to a debt expert and discover which options make the most sense for your situation. Begin a free analysis of your debt situation online and get personalized recommendations from a certified credit counselor.