If you have personal or commercial debts and they have been passed to a debt collection company to recover on behalf of the person you owe (your creditor), they will usually add fees to cover the extra time and resources required.
But how much in fees will be added to your outstanding balance? And can you get away with not paying debt collection fees?
What are debt collection fees?
If your creditor has passed your unpaid debt to a collection agency, they will likely add extra fees to cover the various costs involved. This is in addition to claiming interest on any missed payments.
However, there is no one-size-fits-all approach to debt collection fees. Instead, each debt collection company sets its own recovery fees. There are also differences in fees between individual debts and business debts.
It’s important to note that debt collection agencies can’t add extra charges to regulated debts covered by the Consumer Credit Act (1974) unless there is a clause in the original credit agreement allowing it. These costs must also be reasonable and clearly communicated with no excessive or hidden fees. For example, they can’t decide to charge you £100 simply for sending a letter.
Some debt collection agencies also operate on a ‘no-win, no-fee’ basis, which means they only get paid if they successfully recover payment of the debt. These sort of companies tend to take a more aggressive approach, since failing to recover the money means they potentially won’t be paid for their efforts.
If you think debt collection fees are unfair or excessive, you have the right to request a detailed breakdown and challenge any unfair charges.
How much debt do you have?
Do I have to pay court fees for debt collection?
If the person you owe has passed your debt to an external collection agency to recover on their behalf, you might be wondering if you’ll need to pay any court fees on top of what you already owe. The answer is most likely yes.
These fees are designed to cover the various costs associated with transferring your debt to an external collection agency.
However, while debt collection fees are regulated, how much you’ll pay depends on the collection agency used, the total amount owed, and the stage of the debt collection process you’re at. It’s also important to note that you can only be charged extra fees, expenses, or disbursements if your original credit agreement clearly states that it is allowed.
Do debt collection fees differ between individual and business debts?
The collection fees you can be charged for individual debts differ from how much you’re likely to be charged for business debts.
For example, while debts covered by the Consumer Credit Act (1974) are generally protected from excessive charges, business debts tend to be less regulated. The Late Payment of Commercial Debts (Interest) Act 1998 provides some guidance on the level of fees applicable to business debts, but they can be as much as 25% to 40% of the total debt.
However, as is the case with client debts, debt collection fees depend on the size of the late commercial payment and how long it’s been outstanding. If further action is required to collect payment of a business debt, the creditor might also pursue a writ, which is a court order that gives them the authority to send enforcement agents to your home to recover payment.
In short, businesses might incur higher fees as they tend to have more complex credit agreements and accumulate larger debts.
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How much does debt recovery cost?
The debt recovery process can differ dramatically depending on your individual circumstances. This makes it difficult to predict the total costs you’ll be charged if your debt ends up in the hands of a collection agency.
However, most debt collection agencies charge a fixed sum for their services, and these costs will usually be added to your outstanding balance. This could be a fixed fee, an hourly rate, or a percentage of the value of debt ultimately collected. The creditor might absorb some of the costs, but this isn’t always the case.
Some debt collection agencies also charge an administrative fee for processing your payments, sending you follow-up letters, or setting up a payment plan to help you repay what you owe over time. They can’t charge you for VAT, but they might charge you a sum equivalent to the amount of VAT.
If the debt is passed back to your creditor and subsequently transferred to the High Court for a High Court enforcement officer to collect, extra fees, such as a £75 compliance fee and 8% interest, might be added. This is why it’s recommended to deal with an unpaid debt before it escalates to this stage.
Regardless of which payments you’re asked to make during the debt collection process, always ask for a receipt to prove you’ve paid. This could come in handy if you’re ever accused of not paying or you want to challenge how much you’ve paid down the line.
Do I have to pay debt collection fees (UK)?
As previously mentioned, whether you have to pay debt collection fees depends on the nature of the debt and the terms of the original credit agreement. If it’s not explicitly stated in your credit agreement that further fees can be added, you should be able to challenge them.
The Consumer Credit Act (1974) also adds an extra layer of protection to debts covered by this law. For example, if the debt is classed as a consumer debt (e.g. personal or payday loan, credit card, or utility bill), debt collection fees are not automatically added unless they are allowed in the original contract.
Regardless of the type of debt, debt collection agencies must also be upfront and transparent about any fees recoverable by the debtor. This means that, if any fees are added, they must be reasonable costs and you must be informed before being asked to pay them.
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What happens if I have late payments and don’t pay debt collection fees?
If you’re being asked to repay your original debt and collection fees on top of that, it can be tempting to simply refuse to pay. However, this rarely has a positive outcome for you.
Firstly, the debt collection agency might continue to pursue you for the full amount and charge interest. All instances of non-payment will also be reported to the main credit reference agencies, which will seriously harm your credit score and make it difficult to get approved for most forms of credit, including a loan, mortgage, credit card, phone contract, and even a bank account.
If the collection agency is unsuccessful and the debt is sent back to the original creditor, they might proceed to instruct enforcement agents to collect payment instead. High Court enforcement officers have greater legal powers than debt collectors and could initiate court proceedings, such as a County Court Judgment (CCJ), against you.
What should I do if I want to complain about a debt collector?
If you believe a debt collector has bullied you, harassed you, or pressured you into paying more than you should have during the recovery process, you have the right to complain. Most debt collectors abide by the law when working on behalf of creditors to collect unpaid debts, but like every industry, there are a minority that rely on intimidation or mistreatment.
Firstly, you should complain directly to the debt collection company, discussing the nature of the complaint and providing proof wherever possible. They must thoroughly research your complaint and will usually get back to you on what your next steps are within eight weeks.
However, if you’re not adequately satisfied with the response from the debt collection agency, you can decide to escalate your complaint to the Financial Ombudsman Service (FOS). They will launch an unbiased investigation into the complaint and look at both sides of the matter to ensure they reach a fair and impartial conclusion.
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Conclusion
If your debt has been passed to an external collection company, it’s normal to worry about any extra fees that might be added, especially if you’re unable to pay what you owe as it is. However, extra fees can only be added if the contractual terms of your original agreement clearly state that this is allowed.
The likely costs you’ll be asked to pay depend on a number of factors, such as the total amount owed, the type of debt, and the collection agency you’re dealing with. This can make it difficult to determine exactly how much you’ll be asked to pay in extra costs.
Remember, you have the right to complain about a debt collector if you think they have pressured you into paying more than you can afford and you shouldn’t have had to pay a penny over and above your original debt level.
