Can a Collection Agency Legally Add on Extra Fees?

If you have unpaid bills, you may find yourself receiving phone calls and correspondence from a collection agency. This is certainly not something you want to disregard; it is sufficient cause for concern. One important detail that may alarm you is the addition of interest fees and other charges to the amount you owe. While this may seem outlandish, a collection agency may be well within its rights to add on these fees, depending on your original agreement.

Function

The purpose of a collection agency is to collect the debt on behalf of the company to which you allegedly owe payment. Collection agencies come in many forms. It may actually be the same company who carries the debt, but using a different name and address to seem more intimidating. Another alternative is an attorney that specializes in collecting debts for clients. Mostly, however, it is simply a separate company that does all the leg work, either for hire or by buying out unpaid debts from other companies.

Legality of Extra Fees

According to Section 808 of the Fair Debt Collection Practices Act (FDCPA), upheld by the Federal Trade Commission (FTC), a debt collector may add extra charges and fees to the bill it is collecting if it meets the following criteria: the initial contract for the debt states that such fees may be charged over the term of the debt or during the collection process; or the charge is permitted by state law. In the alternative, if a contract states a debt collector can add such fees, but state law prohibits said fees, then the debtor is not legally bound to pay them.

Types of Fees

A collection agency may add extra fees to your initial bill during the collection process if the above criteria apply. Typically, these fees consist of interest, attorney fees and court costs. You will see interest added to a debt only if the original contract or subsequent bills from the company collecting the debt specifically state that a late payment will incur interest. Of course, the collection agency must be able to provide proof of such provisions in the contract.

Considerations

Even if the contract does not provide for attorney fees and court costs, or there was no written contract to begin with, the state court may permit the addition of reasonable fees as a means of reimbursing the debt collector for money it spent pursuing payment. For example, if the collection agency is pursuing collection on a bad check, it may add on a service charge if a sign posted on the merchant's property states that such a charge will occur, an implication that the debtor was aware of this possibility.