This action by a debt collection agency, while not typically a criminal offense leading to jail time, constitutes a violation of the federal Fair Debt Collection Practices Act (FDCPA). Such behavior is classified as a deceptive or unfair practice. In specific instances, particularly if tied to a larger pattern of fraud, it could lead to criminal charges. 
Violations of the Fair Debt Collection Practices Act (FDCPA)
Under the FDCPA, it is illegal for a debt collector to engage in the following practices: 
Misrepresenting the debt: Claiming a person owes more than the actual amount, or continuing to collect after the debt has been settled, falls under the category of deceptive practices.
Unfair practices: Collecting an amount that is not authorized by the original agreement or permitted by law is strictly prohibited. 
Potential consequences for the debt collector
When a collection agency engages in these practices, it can face consequences including:
Civil lawsuits: The consumer can sue the collection agency for damages, attorney fees, and court costs.
Fines and penalties: Federal agencies like the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) can issue fines against collectors who violate the FDCPA.
Administrative enforcement: The FDIC manual on the FDCPA explicitly states that a debt collector cannot knowingly or intentionally attempt to collect a debt that has been paid or settled. 
What the consumer should do
If a debt collector continues to pursue a paid debt, a consumer should take the following steps:
Stop all communication. Write a certified letter to the collection agency demanding they stop all contact. This is your right under the FDCPA.
Report the collector. File a complaint with the CFPB and the FTC. You can also report them to your state's Attorney General.
Gather documentation. Collect and keep all records, including the signed letter from the collector stating the debt was settled, receipts, and canceled checks.
Consult an attorney. You can seek legal advice from an attorney to discuss filing a civil lawsuit for the FDCPA violations. 


