Collection agencies have various ways of charging for the work they do for clients. One way is through “debt buying” where the agency purchases the debt in whole from the original creditor. The collection agency purchases the debt for a significantly lower amount than the debtor owes, and the original creditor gets to write off the loss on their taxes. Once a collection agency purchases the debt, they contact the debtor and attempt to collect the debt, keeping the amount collected.
Collection agencies calculate their fees based on the age the debt. The longer the debt has gone unpaid, the greater the fee that can be charged. The age of the debt can be calculated from the last day of activity on the account. A collection agency may charge an additional fee for their services such as background checks, filing fees, long-distance phone calls, mailing, court costs, etc.