Even if you know exactly how much you owed your credit card company when it charged off your debt, don't be too surprised if the bill you receive from the third-party collection agency that purchased your account is much higher. Third-party collection agencies are independent companies that collect debt on another company's behalf. Unlike in-house collection agencies, which are owned by the creditors themselves, third-party agencies are bound by the Fair Debt Collection Practices Act -- which sometimes allows debt collectors to charge interest on collection accounts.
The Law
The FDCPA denies most third-party collection agencies the right to charge interest on a debt. Two exceptions to this rule exist. If the original agreement between you and the credit card company stipulated that the debt would continue to incur interest charges after being sent to collections or your state's laws permit collection agencies to levy interest charges on delinquent balances, interest will continue adding up until you pay off the debt.
Fees
When receiving a collection bill considerably higher than the debt itself, debtors often assume that the additional charges are interest charges when this is not always the case. Collection agencies add fees to consumer accounts. Doing so increases the balance owed which, in turn, increases the amount the company can collect in a settlement. Because settlements are so common with collection agencies, increasing the balance you owe with collection fees boosts the company's profit margin. State laws determine the fees, if any, that a collection agency can charge the residents of each state.
Considerations
If you believe the collection agency is charging you interest that you don't owe, you can file a dispute with the company. The FDCPA gives you the right to dispute any aspect of a debt that a third-party collection agency claims you owe. Within five days of its initial communication with you, the collection agency will send you information about your account -- including the amount of the debt. If you don't agree with the amount, you can demand that the collection agency "validate" its claims by sending you written proof that you actually owe what the collector claims you owe. You have 30 days from the day you receive the collection agency's initial notice to request validation.
Recourse Options
Illegal recovery practices in the collection industry aren't uncommon. If the third-party collection agency that purchased your old credit card account is charging you interest illegally, you can report the company to the Federal Trade Commission. The FTC won't take action to solve your individual problem, but it can opt to investigate the collection agency's business practices and levy fines against the company for violating the FDCPA. You also have the right to sue any collection agency whose practices do not adhere to the federal government's debt collection laws.
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