There are three primary sources of limitation on the actions of a debt collector: federal law, state law, and the contract, if any, being the borrower and the original creditor. Federal Fair Debt Collection Practices Act (FDCPA) applies to collectors in all states, and while some state laws impose even stricter requirements and limitations on debt collectors, the Federal restrictions on adding to a debtor's balance after an account has gone to collections are fairly specific and broadly protective of borrower's rights.
Under the FDCPA, when a collector attempts to collect on a debt from an individual, they are limited to the terms of the underlying contract. Even though a collector is never the original creditor, they ‘inherit' the terms of the agreement that governed the arrangement between the borrower and the original creditor. Thus, a collector cannot, without obtaining a judgment from the court, add its various costs of pursuing collection onto the debt it seeks to collect unless the original contract explicitly permits it to do so.
Borrowers should keep in mind that it is rare for a contract to permit or presume to permit a creditor or collector to increase the amount of underlying debt without a court order or judgment. The main exception regards interest, the specific rate or rate schedule for which must and should be clearly stated in the original contract. While interest rates are relatively straightforward to calculate and do not require any particular evidence above and beyond a calculation, costs associated with collection efforts—such as phone calls, mailings, personnel and even legal expenses—require some evidentiary showing to prove the amount actually expended. That is why a lawsuit is usually required before a collector may attempt to add its own collection expenses to a borrower's debt, and that is just one of many reasons borrowers are always advised to retain true and full copies of their written contractual agreements and to consult those agreements directly anytime a question regarding terms of payment arise.
If a debt collector is unsuccessful in their initial collection efforts—phone calls, demand letters, etc.—they may take legal action. After a lawsuit is filed and a debt collector obtains a judgment, they will be legally allowed to recover certain collection costs, though technically those added sums are considered costs of enforcing judgment as opposed to collection costs. Whether actual collection costs incurred prior to obtaining the judgment will be added to the judgment depends on the terms of the contract governing the underlying debt.
In most cases, the expenses related to the lawsuit, such as court filing fees and service fees, will be added to the judgment at the collector's request. Legal fees associated with the lawsuit or with prior collection efforts may be added to the judgment as well depending on whether the governing contract expressly provides for compensation for attorney fees. In California, attorney fees are not awarded by default, so a borrower should not have to pay the collector's attorney fees if (1) the agreement was oral and no written terms exist, or (2) the contract is silent on the issue of fees or states that the parties shall be responsible for their own fees.