How to avoid debt collectors' fees

Just because they make them up, you don't have to pay them

To Her Credit columnist Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs.

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Question for the expert

Dear To Her Credit,
I had an apartment for a short time when I was working in a town that was too far away to commute. When I was laid off, I knew I would have to pay an extra two months' rent, or $1,000 total, for breaking the lease.

I didn't have that chunk of money on me, of course, so I asked my landlord for a repayment schedule. They said they would "be in touch." Mistake No. 1, I know. I should have gotten something in writing.

I waited a couple of months to hear from them. I was finally contacted -- by a collection agency! For an amount that equals just over three months' rent instead of two! I responded (in writing this time) that I would pay the two months' rent amount at $150 per month, and I even included a payment with the letter.

The collection agency responded with an itemized list -- the extra $500 was actually their fee! And they reminded me that the lease said I would be responsible for "any and all collection fees." I can't see how they can just arbitrarily add hundreds of dollars on ... what's to stop them from adding several thousand?

What can I do? -- Christine

Answer for the expert

Dear Christine,
I asked Jonathon G. Stein, a consumer law attorney and author of the California Debt Blog, if the collection agency could tack on a fee like that. His short answer: "No."

Collection fees are authorized by law, but they must be "reasonable." In California, for instance, a creditor can recoup his expenses. There are no defined rules for what reasonable is, but $500 to collect $1,000 is not.

Who decides what is reasonable?
Ultimately, if a case goes to court, a judge has to decide what is a reasonable cost. Stein just defended a case where the debt collector claims he spent $240,000 to collect a $1,000 debt. "They put in the court documents that they spent that. It's not in front of a judge yet, but there's no way they will get it," he says. "It has to be reasonable."

Why do collectors try to get huge fees that are so obviously out of whack? Obviously, some people pay them anyway. Debtors may be scared that if they've racked up that much of a fee in a couple of months, how much will they owe if they wait and question the bill? Stein says sometimes the debt collection companies just want to make a point, so they put in any amount they can. They did get your attention with their bill, after all!

You should definitely dispute this bill. It won't help to call on the phone, nor will it do any good to write an angry letter (although if you're like me, you've been composing one in your head!) And never, ever ignore a bill, no matter how ridiculous it is. Here's what to do:

Send a validation letter, also known as a "verification of debt request." You can start with a sample letter. The federal Fair Debt Collection Practices Act requires agencies to validate a debt when there's any question about the legitimacy, ownership or any other aspect of the debt. Ask them to itemize how they calculate their fee.

When a consumer sends a validation letter, according to Stein, the debt collector normally goes away. "They don't like dealing with people who know what they're doing," he says. If the debt collector persists, you persist, too. Pay the amount you owe as quickly as possible, but don't be intimidated. You're not responsible for unreasonable fees dreamed up by an unscrupulous collection agency.

Take care of your credit.

See related: Debt collection sample letters, Know your rights: Fair Debt Collection Practices Act, 11 tips for dealing with debt collectors

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Updated: 01-21-2018