If you have stopped paying, or defaulted, on your debt, then that debt may accrue additional interest and fees. A credit card, for instance, may charge you late fees and over-the-limit fees on top of your existing balance. Your responsibility for these fees is usually detailed in the original application you signed at the time your credit line or loan was issued.
However, if that balance has been transferred to a collection agency, then the fees and interest payment obligations may change. In Texas, the law states that a third party debt collection agency must detail fees or charges they have added to the original debt.
Which Texas statute details the interest and fees requirements?
All third-party debt collection agencies are required by Texas Finance Code, Section 392.303 to provide evidence that they have the authority to collect interest or a charge, fee, or expense incidental to the debt obligation.
The debt collector is attempting to collect more than my original balance with the original creditor. Is this Legal?
At the time you were issued your loan or credit line you most likely completed and signed an application. This application should have specifically detailed the interest rate, charges, fees or incidental expenses that could be charged in the event of late payment, non-payment or default.
According to Texas Finance Code, the debt collector must show proof that you agreed to these additional charges and that those charges have been expressly authorized by said agreement.
If they are unable to show definitive proof, which includes your agreement to the terms of the loan, then they are illegally adding fees, interest and charges to your balance.
How do I request proof that these additional charges have been expressly authorized?
You may request that the third party debt collector “validate” the debt. In this debt validation, the debt collector must provide, among other things, the name of the original creditor, the date of transfer from the original creditor to the third party debt collector, and signed documentation proving that the debt has been transferred.
When requesting a debt validation from the original creditor, you may also request other pertinent information related to the debt, including a detailed description of all interest, fees, charges and incidental expenses that have been added to your balance after it was transferred from the original creditor to the third party debt collector.
Additionally, if even $1 in additional expenses have been added to your balance, the debt collector must provide evidence that they are expressly authorized to add such charges.
Evidence, in this case, would be the original signed (with your signature) contract detailing the third party debt collector’s authorization to collect such fees.
What is the likelihood that the third party debt collector will have this contract?
Because debt is generally purchased from original creditor in bulk, and is often passed from one collection agency to another, the odds that a third party debt collector has the original contract signed by you authorizing additional fees and expenses are pretty low.
So, if I have been charged additional fees illegally, can the account be removed from my credit report and does the debt collector have to cease collections?
Option 1: After you have requested a debt validation, and if the third-party debt collector is not able to provide evidence that they are authorized to collect additional interest and/or fees, you can request that they update your outstanding balance with the credit bureau(s) so that it is accurate.
Option 2: If the third party debt collector is unable to provide evidence that they are authorized to collect additional interest and/or fees, you can hold them accountable under Texas Law. This option often leads to complete removal of the inaccurate listing with the credit bureaus and a permanent stop to collection attempts on the account.
By illegally collecting interest, charges, fees or incidental expenses, the third party debt collector has engaged in what Texas Law defines as “unfair and unconscionable means.” As such, they have commited a criminal act and can be held accountable by the State of Texas. They are also subject to civil remedies under Texas Finance Code 392.403 holding them financially responsible to you, the alleged debtor.
In addition, a violation of Texas Finance Code can be legally pursued under the Texas Business and Commerce Code Deceptive Trade Practices statutes. Under these statutes, the debt collection agency can be ordered to pay a trebling, or three times the amount of damages awarded under Texas Finance Code.
What steps do I need to take if I believe a third party debt collector is illegally collecting interest or fees?
Step 1: Verify that the debt collection agency is, in fact, illegally collecting these fees by requesting a debt validation.
If you find that they have violated Texas Law, then you can further pursue the matter.
Step 2: In order to effectively fight third party debt collectors, it is recommend that you pursue further action under Option #2 from the above question/answer. You have several different approaches to take, with the two most effective techniques below:
- Take the third party debt collection agency to court for violation of Texas Finance Code and Deceptive Trade Practices Law. You can also file a complaint with the Texas Attorney General to have the State pursue criminal action. The process of pursuing civil remedies may take several weeks or months to complete. Criminal remedies are at the discretion of the Attorney General’s office and may or may not be initiated.
- Offer the debt collector a settlement option. If you would prefer to focus on quickly removing this inaccurate listing from your credit report and to stop all future collection attempts, then it may be in your interest to offer a settlement to the third party debt collector. The Big Tex Credit Repair Program lets you take charge of your personal credit and provides clients with the tools necessary to initiate a Debt Validation and subsequently an Intent to Sue action against a debt collector who has violated any provision of Texas Law. Within these actions you will provide the third party debt collector the ability to settle out of court, on your terms, or face legal action. If history is any guide, then most debt collection agencies buckle under the pressure.