Collection agency charges might be illegal. Collection agencies must follow two sets of rules when collecting debts from consumers.
Collection Agency Charges & the Fair Debt Collection Practices Act
The first set of rules are found in the federal Fair Debt Collection Practices Act (FDCPA). The FDCPA applies to all collection agents, and protects all US residents. Under the FDCPA, collection agents may not engage in unfair practices when they try to collect a debt. One unfair practice listed in the FDCPA is trying to collect any interest, fee, or other charge on top of the amount you owe. In other words, collection agents cannot add anything extra to an account it is collecting. There are two exceptions to this rule:
- The contract that created the debt allows the charge, or
- Your state law allows the charge
Do not assume the collection agent can charge you interest or fees. Almost all collection accounts come without any documentation. In fact, most collection accounts are not physical file folders, which is what one might expect, but instead are lines on a spreadsheet or entries in an database.
Therefore, in almost all cases, collection agents will have no evidence of what the contract you signed contains. Your contract you signed might have clause that reads something like, "Collection agents can charge 10% interest and whatever fees they want" or the contract could be silent on the rights of collection agents. Because they don’t have the contract, a collection agent does not know if it can add mystery fees one way or another.
Smart collection agents do not add fees or interest to collection accounts because they know they can’t prove they have the right to ask for them. Aggressive collection agents, on the other hand, add fees in hopes consumers don’t know their rights under the FDCPA.
Bills.com is not aware of any state that outlaws the collection of interest on collection accounts. (Readers, if you know of any please add a comment below.) Therefore, you must refer to your contract with the creditor to see if it spells out the interest or fees collection agents can charge you.
Collection Agency Charges & State Laws
Fifteen states have laws that mirror, or in some cases, offer stronger protections to consumers than the federal FDCPA. (See the table at right.) These protections include adding original creditors to the description of who is covered by the debt collection laws, additional consumer protections, and additional damages consumers can claim for violations. Make sure that if your state offers you extra protections, you understand what these are.
Most of the 15 states with collection agency laws add limits on when and how many times a collection agent or original may contact a consumer. Some define debt validation more extensively than the FDCPA. Some states prohibit communications to a consumer at their workplace, or restrict in-person contacts. Some make violating their state collections laws a crime. Others allow state agencies to tack-on collections fees, but restrict the amount. It's your responsibility to know the laws in yours state, so you can protect yourself from improper collections.
Collection Agency Charges — Now What?
Just because someone claims you owe a debt doesn’t mean that you do. Any time a collection agent or original creditor contacts you to collect a debt, send a debt validation notice. A debt validation will establish the collection agent's right to collect the debt, and how much the original creditor said you owed. The collection agent must provide, at minimum, the following pieces of information:
- The name and address of the original creditor
- A statement from the original creditor the debt is valid
- The amount of the original debt
- Copies of judgments (if applicable)
As mentioned above, some states require more pieces of information when validating a debt, and here is where it pays to understand your state’s laws.
When a collection agent or original creditor offers incomplete validation, send it a notice of insufficient validation. You are not required to pay a debt a collection agent or original creditor cannot validate. You have the right to dispute (argue about) the amount due, especially when it conflicts with your records. A collection agent violates federal law, and perhaps your state law, when it attempts to collect a debt it cannot validate. File a complaint with your state attorney general’s office and the FTC if a collection agent or original creditor violates the law.
If your state is listed in the table above, follow the link to learn more about the state laws protecting you. File a complaint with your state’s attorney general and the FTC if a collection agent violates your state laws or the FDCPA. Also, consult with a lawyer who has consumer rights or FDCPA experience. You may have a private right of action (a legal reason to file a lawsuit) against the collection agent.
If your state is not listed in the table above, contact your state attorney general's office to learn what, if any, consumer protection laws your state offers.
Collection Agency Charges — Statute of Limitations
If the collection agent validates the debt, then look to your state’s statute of limitations to learn if you have a legal obligation to pay the debt. See the Bills.com Statute of Limitations Laws by State resource to learn the statute of limitations on your debt. If the statute of limitations clock has run out on your debt, the collection agent or original creditor can in all but two states ask you to pay the debt. But collection agents violate the FDCPA if they file a lawsuit on expired debt.
See the Bills.com article Collections Agencies, Collections Laws and Your State’s Statute of Limitations to learn how to handle debt where the statute of limitations has not expired.
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