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If you’re trying to clear up your credit by paying off a collection account, beware: you may owe more than you thought. A Credit.com reader asks:

I have an old credit card collection that started as a $4,000 charge-off and the collector is telling me that I now owe double that amount.  Can collectors arbitrarily charge whatever they want and call it “interest and fees”? Is there a limit to what they can charge?

I want to pay the debt, and I now have a great job with decent income to do so, but I don’t want to pay more than I actually owe. If possible, I’d like to negotiate a settlement… I’m considering offering 25% of what they’re saying I owe but I’m not sure if that’s acceptable and was hoping you might have some advice for negotiating with a collection agency to settle and clear a debt.

Yes, debt collectors can often charge interest on accounts in collection. How much they can charge depends on a couple of different factors. Mark Shiffman, spokesman for ACA International, the largest third-party debt collection trade group, explains:

As a general rule, the addition of any interest, services fees, collection costs or other expenses incidental to the original debt is permitted when “such amount is expressly authorized by the agreement creating the debt or permitted by law.” 15 U.S.C. 1692f(1) [§ 808(1)]. However, collection laws on both the federal and the state level also speak to this issue so it is critical for both creditors and the collection agencies that they do business with to be aware and comply with these laws, not only when an account has become delinquent but also in the stages of drafting the contract that creates the debt.

Generally, the contract you agreed to when you took out the loan or signed up for the credit card will govern how much interest can be charged on an account, as long as it’s not larger than the amount allowed under state law. Otherwise, state law prevails. The majority of states (41) have laws that address the interest that can be charged, while nine remain silent, Shiffman notes. Those nine are: Alabama, Alaska, Florida, Indiana, Kentucky, Maryland, Montana, Ohio and South Dakota.

How Much Is Too Much?

However, just because collectors can charge interest on collection accounts doesn’t mean they always calculate it correctly. And consumers like our reader are often in the dark when it comes to understanding whether the amount the collector tells them they owe is accurate. The CFPB reports that in 2012, 8.8% of debt collection complaints, or 9,034 complaints, asserted that collectors demanded interest, fees or expenses that were not owed (such as unauthorized collection fees, late fees and court costs).

“It is really murky,” says Michael Bovee, a debt negotiation expert and founder of Consumer Recovery Network. “There aren’t any uniform requirements for debt collectors and debt buyers to show how fees and interest have accumulated.”

He says that most consumers either try to find out where the figures are coming from by disputing a debt and requesting verification (which, unfortunately, doesn’t always lead to more clarity) or through the discovery process if a consumer challenges the debt or a debt collection lawsuit.

Consumer law attorney Fred Mertens says that he’s seen situations where collectors get it wrong. In Washington state where he practices, for example, he says there is a “statutory interest rate of 12% from the date of alleged charge off (but) that’s also misleading because the collector often didn’t acquire an interest in that account until much later.” As a result, debtors may be overcharged.

There’s yet another problem. Consumers who enter into payment arrangements with a collection agency may make payments for months or years, only to discover the balance has barely budged due to accumulating interest charges. Since consumers don’t get statements the way they do with their credit card bills, they may assume that their entire payment is going toward principal, when in fact a chunk of it is going toward interest.

What Can Debtors Do?

If you find yourself facing collection for a debt you believe has been inflated, here’s what to do:

If you aren’t sure the amount the collector is stating you owe is correct, dispute it. Request written verification of the debt. This is your right under the federal Fair Debt Collection Practices Act. You may not get all the details you need to ascertain whether the amount is correct, but it doesn’t hurt to ask.

Get your free annual credit reports. Check the balance the original creditor, such as the credit card company, listed as “charged off,” and compare it to what the debt collector is asking you to pay. If there has been a huge jump in the balance owed, that may be a clue that someone’s math is off.

Remember, collection accounts are often negotiable. If you do think the amount they are asking for is correct, but you can’t afford to pay it, try to negotiate a settlement. You may be able to pay substantially less, especially if you are dealing with a debt buyer on an older debt.

Clarify payment arrangements. If you make a deal to pay the collector over time, ask the collector about interest or other charges. Then get it in writing. “Get all the terms in writing including an amortization schedule showing how the balance is going to be settled,” says Martens.

Complain. If you believe the debt collector is inflating the amount you owe, you can reach out to the Consumer Financial Protection Bureau for help. At a minimum, your complaint will be collected for their annual report to Congress on debt collection. But they may also be able to help you resolve your issue with the collector.

Get legal help. A consumer law attorney may be able to help. Attorneys with experience in debt collection cases will often offer a free or low-cost consultation to help you figure out if the debt collector may be breaking the law in its efforts to collect. If so, you may be entitled to damages and the collection firm may have to pay your attorney’s fees.

Back to our reader’s question: Is it possible for a debt to double in a few years? Yes. If a debt collector charges 26% interest on a $2,000 debt, for example, in three years the balance could grow to more than $4,000. That’s one of many reasons to monitor your credit using a tool like Credit.com’s free Credit Report Card. By monitoring your credit score each month, you’ll find out if new collection accounts appear on your credit so you can catch them before they get out of control.

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