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Consumers Should Be Skeptical of Interest & Fees from Debt Buyers, Experts Say

Michael Rapp Aug. 21, 2014

Unfortunately for consumers, it is common practice for debt collectors to increase their profits by adding interest and fees to purchased debt. In many cases, debt collection agencies can significantly increase the amount of debt owed, but legal experts argue that consumers should be skeptical of any additional debt being added.

In a Fox Business article, Peter Barry, a consumer lawyer in Minneapolis, MN argues that “If a debt buyer purchases (your debt), the right to collect interest is not automatic.”

Although it may be legal in some cases for debt buyers to add interest and fees onto money the buyer did not originally lend, such interest and fees are becoming increasingly scrutinized by the Federal Trade Commission and CFPB.

To add to the problem of consumers being charged extremely high interest rates and arbitrary fees on defaulted loan debt, the FTC reports that in such cases, buyers provide very little information on the debt’s origin or history. Further, when called out on erroneous debt addition, many collectors fail to show up in court, causing cases to slip through the cracks.

In other cases, debt buyers add on interest and other fees that are completely made up, or charge consumers on interest before they actually owned the debt.

For example, one debt buyer, Asset Acceptance, charged a Michigan consumer $400 in interest for debt the company bought. The only problem was that Asset Acceptance charged the consumer on the 2 years prior to it owning the debt.

Asset Acceptance was eventually charged in a Michigan federal court with ”false statements regarding the total amount of the debt.”

The Fox Business article notes that many debt buyers are not subject to Truth in Lending, so they “claim the right to charge interest on the unpaid amount without sending you monthly statements”.

The U.S. Fair Debt Collection Practices Act says that debt collectors may add fees or interest only if the amount is “expressly authorized by the agreement creating the debt or permitted by law”, which requires a “copy of the original card agreement to prove the interest is permitted.”

State laws also dictate interest rates and fees that debt buyers can charge. The federal government is reportedly working on new laws that would require debt buyers to provide more accurate documentation justifying interest and fee charges.

So, what is one to do when he or she believes that debt buyers are unjustly charging interest rates and/or fees? Experts say the best course of action is tocontact a consumer protection attorney for legal advice.