Can collection agencies charge interest?

Can collection agencies charge interest?

Debt collectors and creditors must follow federal and state laws when adding or charging interest on debts.

Interest on Debts (when no judgment exists)
Section 808(1) prohibits debt collectors from collecting any amount unless the amount is expressly authorized by the agreement creating the debt or is permitted by law. For purposes of this section, “amount” includes not only the debt, but also any incidental charges, such as collection [53 Fed. Reg. 50108] charges, interest, service charges, late fees, and bad check handling charges.

808(2) Legality of charges. A debt collector may attempt to collect a fee or charge in addition to the debt if either:

(a) the charge is expressly provided for in the contract creating the debt and the charge is not prohibited by state law, or

(b) the contract is silent but the charge is otherwise expressly permitted by state law.

Conversely, a debt collector may not collect an additional amount if either:

(a) state law expressly prohibits collection of the amount or

(b) the contract does not provide for collection of the amount and state law is silent.

808(3). If state law permits collection of reasonable fees, the reasonableness (and consequential legality) of these fees is determined by state law.

808(4). A debt collector may establish an “agreement” without a written contract. For example, he may collect a service charge on a dishonored check based on a posted sign on the merchant’s premises allowing such a charge, if he can demonstrate that the consumer knew of the charge.

Interest on Debt (when a judgment exists)
States have their own rules for adding interest to judgments. Sometimes called statutory charges, because the amount of interest is set by law. Typically, interest begins to accrue from the date the judgment is rendered until the judgment is paid in full. Use this Garnishment Laws and Procedures link to learn what about your State’s interest rate on judgments. After locating your state’s garnishment procedures, look at the “Interest Rate at which Judgments Accrue ” section located just after the procedures.

Interest on overdue taxes, child support and student loans.
The interest on overdue federal taxes and defaulted student loans is set by federal law. Interest on overdue child support is set by state law. See the IRS FAQ for information on overdue taxes. Use this FAQ link to learn more about interest on defaulted student loans. Use this child support calculator link to learn more about child support interest.

Legal Fees:
Legal fees refer to charges for an attorney’s services and may also include court costs such as filing fees. Creditors typically add the legal costs of collecting a debt to the account balance. There is a distinct difference between lawyers that are debt collectors and lawyers that are representing a creditor. An attorney or law firm whose efforts to collect consumer debts on behalf of its clients regularly include activities traditionally associated with debt collection, such as sending demand letters (dunning notices) or making collection telephone calls to the consumer, are debt collectors and subject to the FDCPA and must follow the rules outlined above.

On the other hand, an attorney whose practice is limited to legal activities (e.g., the filing and prosecution of lawsuits to reduce debts to judgment) are generally exempt from the FDCPA but may still be liable under state collection laws.

If you believe you are a victim of unfair or illegal debt collection tactics, submit your information to a FREE* Fair Debt Lawyer by:

The debt collector may just be liable to you for statutory damages of up to $1,000, plus any actual damages suffered, plus attorney fees!


  1. Stressed and depressed

    I noticed that I have a dentist bill in collections which is only 30 some dollars but I guess they are still charging interest even after they have turned it over to collections. I never knew that I owed what was left of an old bill. It’s our family dentist so the bill was for some reason being sent to my fathers house and he just put the bills on my dresser of my old room. It looks like the bill was around 30 dollars but there is a stack of normal bills sitting there until recent. They are still charging interest and the intrest is a little over 40 bucks. So the total is around 70 something. Can they still send me a bill and charge me interest even though I guess they turned it over to collections back in 2011? Also the collection agency has even a totally different amount of 170 something on my credit report. What is your suggestion? Can I suggest a pay for delete or go a different way?

    • Thank you for the question, consumers do have rights under the Fair Debt Collection Practices Act (FDCPA). There are specific issues related to interest and the disclosure of interest that we would be happy to review for you. At first glance this doesn’t pass the “sniff test” it sounds like the collector may be doing something wrong. Take advantage of this site’s FREE, no obligation case review and let’s figure out how to get you some real help. Debt Help Lawyers at this site can provide you a free, no obligation Fair Debt consultation. The worst thing to do is nothing, so call us now at 888-595-9111 and we will get started figuring our how to help you!

  2. Michelle Peterson

    Do you handle any cases in Alaska?

  3. Due to personal problems I went confine to a state institutions for about three years I was release and found all my accounts in collections is there anyway that the collection company help me the original was about 15 thousand and now it’s around 30 thousand with interest so what can I do

    • It sounds like you would benefit from re-prioritizing your debts through debt settlement, and the Debt Help Lawyers at this site can provide you a free, no obligation Fair Debt consultation. The worst thing to do is nothing, so call us now at 888-595-9111 and we will get started figuring our how to help you!

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