Borrowers are facing some major challenges in today’s landscape, and it doesn’t appear that the financial strain will be easing any time soon, either. Inflation is higher than it should be, driving up the costs of nearly everything and putting a strain on people’s budgets. Household debt also remains at record levels, and credit card rates are elevated, sitting at nearly 22% on average. In turn, there are a lot of borrowers falling behind on their debt payments, and in many cases, they are finding themselves dealing with collections calls and letters from an unfamiliar company instead of the lender they originally borrowed from.
That’s because unpaid debts are frequently sold to debt buyers, often for a fraction of the outstanding balance, once creditors determine they’re unlikely to be repaid. And, for many borrowers, that shift from original creditor to debt collector can be confusing. Suddenly, the name on the collection notice is different, the payment instructions have changed and the balance has ballooned from what it was when the debt first went unpaid. In turn, it makes sense to wonder if the debt has grown simply because someone else now owns it and is tacking on extra fees.
But while debt buyers have the legal right to collect what is owed after buying your debt, can they actually create new charges or increase the amount you owe? Knowing where the rules begin and end can help you make smarter decisions about resolving the debt.
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Can debt collectors add more fees after buying your debt?
Simply purchasing your debt does not give a debt collector the right to add new fees to the balance. When a debt buyer purchases an account, it generally steps into the shoes of the original creditor. It acquires the right to collect the debt under the terms of the original agreement, but it doesn’t gain the ability to invent new charges because ownership has changed. Federal law prohibits debt collectors from collecting any amount — including interest, fees or other charges — unless those amounts are expressly authorized by the original contract or permitted under applicable state law. What that means is that whether your balance can continue growing depends largely on two factors:
- Your original agreement: Many credit card agreements allow interest to continue accruing after default or permit certain collection-related charges. If those provisions remain enforceable, a debt buyer may be able to collect on those charges.
- State law: Some states allow certain interest or court-related costs to be added, while others place stricter limits on what can be collected after a debt has been charged off or sold.
However, debt buyers cannot simply decide to add an administrative fee, processing fee or other charge that isn’t authorized by your contract or by law. Likewise, if a debt collector charges a fee simply because you choose to pay online or over the phone, that fee generally must have been authorized in your original agreement or specifically allowed by law. Otherwise, it may violate the Fair Debt Collection Practices Act (FDCPA). If you notice your balance has increased after your debt was sold, don’t assume the amount is correct. Request a breakdown showing:
- The original balance
- Any interest that has accrued
- Fees that have been added
- The legal basis for those charges
Reviewing that information can help you determine whether the increase appears consistent with your original agreement and applicable laws.
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Can debt relief help if the balance has grown?
While additional interest or legally permitted charges can increase what you owe on your collection debt, you don’t necessarily have to repay the full balance as listed. Many debt buyers purchase delinquent accounts for significantly less than their face value. As a result, they may be willing to negotiate a settlement for less than the total amount owed, particularly if it allows them to recover money more quickly.
This is one reason your available debt relief strategies can be worth exploring when you have substantial unsecured collection debt to deal with. Depending on your financial situation, you may be able to negotiate directly with the debt buyer on a lower-cost settlement or work with a reputable debt relief company that negotiates settlements on your behalf.
Before agreeing to any settlement, however, make sure you receive the terms of the agreement in writing. It should clearly state the amount you’ll pay, outline when the payment is due and note that the remaining balance will be considered satisfied once the settlement is complete. Keeping these types of detailed records can help protect you if questions arise later.
It’s also important to compare formal debt relief strategies with your other options. If your financial hardship is temporary, a payment plan or hardship arrangement — or even an option like a debt management plan or credit counseling — may allow you to resolve the account without pursuing debt settlement and the downsides that come with it.
The bottom line
A debt collector doesn’t gain unlimited authority to increase what you owe simply because it purchased your account. While interest and certain fees may continue if they’re authorized by your original agreement or permitted by state law, debt collectors generally can’t invent new charges after buying your debt.
If your balance appears higher than expected, ask for an itemized explanation before making payments. Understanding exactly why the amount has changed can help you identify potential errors, protect your rights and determine whether negotiating a settlement or pursuing another form of debt relief makes the most financial sense.