Published Friday, February 10, 2023 by Alan Holdren

When your consumer initially signs your financial agreement, chances are you are not thinking of turning them over to a collection agency. However, that is the very moment in which to communicate your expectations for payment. Draft your financial agreement very carefully after considering the costs associated with collections, including the fees you will be expected to pay a collection agency.

Atlas works on a contingency basis. We work on your account first, and then once the money is collected we are paid a percentage of it. This means that when you finally see your dollars come home, you have to part with some of it to pay the collectors who brought it to you. How can clients offset some of this cost? It all begins in your financial agreement with the consumer, but beware; ambiguous language in that agreement means uncertainty of terms. If the terms are not clear then it cannot be quantified. Our courts in Central Indiana contend that an agreement must state specifically what all fees are for, and how much they are.

In a broader sense, the Fair Debt Collection Practice Act (FDCPA) calls the collection of any amount that is not expressly authorized by an agreement which created the debt an *unfair practice.

This means verbiage in a financial agreement such as, “In the event of default in payment, reasonable collection fees shall be added to the amount due on the account,” is insufficient. The financial agreement must state the percentage of the principal balance will be added to that balance in collection fees (and the percentage must be within the bounds of the state code). When clients list delinquent accounts with us asking that we add collection fees, the following criteria must be met:

1. The collection fee clause must explicitly state the percentage of collection fees to be added to the principal balance in the event that it is listed with a collection agency.
   
2. The financial agreement must be signed by the consumer.
   
3. The date of the consumer signature must be on or before the date of service.
   

We make every effort to help our clients offset the contingency fees they pay to us with the collection fees added to their delinquent accounts. This curbs the cost greatly – sometimes completely. A clearly defined and specific collection fee clause helps in this endeavor, and can help your bottom line.

* Fair Debt Collection Practices Act of 1996 § 808, 15 U.S.C. 1692f (1996)