If a person defaults on a personal debt he will likely face pressure to pay off his debt. The creditor may choose to pressure the debtor itself or it may outsource the task to a collection agency. The collection agency has all the powers accorded to the creditor in seeking repayment. However, the agency must respect the loan contract and is forbidden from adding additional interest or fees.
Contracts
Most debts derive from a contract in which the debtor agreed to pay back the creditor by a certain period of time. If the debtor fails to do so, the contract may stipulate that the debtor is required to pay additional fees or a higher rate of interest on the loan. When this is the case, the debtor is legally required to pay these fees. However, the creditor may not add new fees or interest arbitrarily.
Interest and Fees
A collection agency assigned collection of a debt is not allowed to alter the terms of the debt contract. This means that while the collection agency is allowed to assess the interest and fees called for in the contract, it cannot assign the person additional fees or charge additional interest. Creditors who do this may face civil penalties.
Considerations
Even if a significant time period has passed since the debt was issued or the creditor has to spend money to collect on the debt, it cannot pass charges or interest on inflation to the debtor. According to the Fair Debt Collection Practices Act, any money that the creditor spends trying to collect a debt, even a debt severely past due, cannot be passed onto a debtor.
Civil Judgments
The only exception to this rule is if a collection agency sues the debtor in civil court and is awarded damages. If the judge chooses to, he may award the collection agency compensation for legal fees. In such a case, the debtor is responsible for paying the extra fees assigned by the judge.
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