Can a Collection Agency Charge More Than the Original Debt?

Imagine an old credit card balance of $1,000 goes to collections. Then a collector’s letter arrives saying you owe $1,500.

Whether that’s legal depends on what your original agreement allows and the laws in your state. Before you pay, you have the right to ask a collector to show how it got to that number.

Can a collection agency charge more than the original debt legally?

Under the federal Fair Debt Collection Practices Act (FDCPA), a collector can’t add any interest or fee that your agreement or the law doesn’t allow.

Why your collection balance might be higher

According to the CFPB, a debt collector may be allowed to add interest or fees to your balance if:

• The agreement with the original creditor allows it, and there’s no state law banning it
• Your state’s laws specifically allow collectors to add interest or charge extra fees

Your card agreement may include a penalty APR, a higher interest rate that can apply to balances once you’re 60 days behind on your minimum payment. Late fees can add to the balance too.

In many cases, interest continues to add up until the original creditor charges off the debt, meaning it writes the debt off as a loss but you still owe it, or sells it to a debt collector. Whether interest continues to add up after a creditor charges off your debt depends on your original agreement and your state’s laws.

What if you and the debt collector are in different states?

Which state’s laws apply can depend on your original contract and on both states’ rules. If the collector’s state allows extra charges and yours doesn’t, don’t assume either one wins. Check before you pay.

‍Who added the charges changes the rules. The FDCPA covers collectors, not your original creditor. Interest the creditor added before charging off the account falls under your card agreement and federal credit card rules.

Check it yourself: Look up your card’s terms in the CFPB’s credit card agreement database. Search by the issuer’s name, which is printed on your statement or the back of your card. For your own account’s exact terms, ask the issuer for a copy of your agreement. Federal law requires issuers to provide it.

How to verify the amount a collector says you owe

A higher balance isn’t necessarily illegal, but you can check it before you pay.

Request debt verification

A debt collector must send you a validation notice either in its first contact or within five days after it. This notice must break down the balance, listing the interest, fees, payments, and credits added, so you can see how the debt grew. It also gives you the option to dispute it by requesting debt verification.

Even when the debt is yours, requesting verification is a smart move. If you dispute the debt in writing within 30 days of receiving the validation notice, the collector must stop trying to collect until it mails you verification.

Compare with your original creditor's records

Double-check the collector’s numbers with your old account statements. If you don’t have them, ask the original creditor for copies.

If the collector is trying to charge you much more than you originally owed, it might be a mistake or a deliberate effort to get you to pay more.

Read more >> Can a Collection Agency Change the Open Date on Your Account?

Before you pay a balance you’re not sure about. State rules decide a lot when it comes to collections including which state’s rules apply if the collector is somewhere else. In some states, even a small payment can give a collector a new window to sue. Before you pay or agree to pay, check your state’s rules with a legal aid office or a licensed consumer attorney.

If you’re deciding how it fits with your other bills, a nonprofit credit counselor can help. The National Foundation for Credit Counseling can connect you to free or low-cost counseling at 800-388-2227.

If a collector is charging more than it’s allowed to

When a collection agency is charging more than they’re allowed to, try one or more of the following:

• Gather your statements and the validation notice.
• Dispute the amount with the collector in writing.
• Dispute a wrong balance with each credit bureau.
• File a complaint with your state attorney general.
• Submit a complaint to the CFPB.

Disputing with the collector deals with what you’re asked to pay. If your credit report shows the same wrong balance, it stays there until you dispute it with each credit bureau that lists it.

Disputing with the bureaus is free. Kikoff’s AI Credit Disputes can help with the paperwork. You tell it why the balance is wrong, and it drafts a personalized dispute letter for you to send.

Read more >> How Long Do Collections Stay on Your Credit Report?

Bottom line

A collector can charge more than the original debt only when your agreement or your state’s law allows it, and you can see the math before you pay.

Checking the amount keeps you from overpaying, but it doesn’t add anything positive to your credit. On-time payment history does. Kikoff’s Credit Account reports your on-time payments to Equifax, Experian, and TransUnion, with no credit check to sign up. Plans start at $5 a month.