Collection agencies are private companies hired by creditors to seek payment of a debt. In some cases, these collection agencies will be hired on commission, receiving a percentage of the amount they recover. In other cases, the agencies will buy the debt outright from the creditor. In either case, the creditor is not allowed to charge the debtor any fees or interest payments that the original debt contract does not specifically allow for.
Collection Agency
A collection agency, whether it has purchased the debt or is merely acting as a representative of the creditor, is afforded the same rights with regard to debt collection as the creditor. This means that the collection agency is allowed to collect the exact amount of money that the debtor contractually owed the original creditor. However, the collection agency gains no special rights, meaning he cannot charge the debtor new fees at will.
Contracts
All debts are secured in contracts, either verbal or written. When a debt is sold or transferred, the original recipient of the money owed in the debt switches from one party to another. However, the original terms of the contract apply. When a debt is transferred, the new recipient of the debt cannot amend the terms of the original contract without the debtor's consent. This includes adding in new interest payments.
Additional Interest
According to the Fair Debt Collection Practice Act, a federal law, neither a creditor nor a collection agency acting in his stead can add additional interest to a contract. Even if a creditor claims that the interest is justified because the debt has been outstanding for a certain period of time, this is patently illegal if the contract does not explicitly allow the creditor to do it.
Considerations
Some contracts do allow creditors to charge debtor's additional interest if the debt is delinquent. If this is the case, a collection agency can charge the debtor interest in keeping with the terms of the contract. However, the collection agency must also abide by state and federal laws. Some states will cap the amount of interest that a company can charge a debtor. These contracts do not absolve collection agencies of a responsibility to follow the law.
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