It sounds like the collection agency violated the Fair Debt Collection Practices Act and you may have a claim against it. Many attorneys specialize in this type of claim and you ough5 to consult one. You may be entitled to money if the collection agency threatened to take illegal action or did in fact take such action.
The above is not legal advice. Contact an attorney for legal advice about your case.
It appears that the collection agency may be violating the Fair Credit Reporting Act. Before you can take action against the debt collector, you must properly dispute the reporting to each of the credit reporting agencies.
Also, a demand for any amount that is more than the amount actually owing, may be a violation of the Fair Debt Collection Practices Act. Was this a consumer debt?