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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!

confidential informationThere may be instances where discussing your situation over a public forum could potentially compromise your interests. On these occasions we will contact you directly via email in order to answer your inquiry in a confidential manner.

20 comments

  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!

  4. I have a bill on my credit report for 339,call to get the address to send payment they told my bill is now 493 daily interest rate of, 10%.. on 3months the bill jump from 339 to 493. Not understanding This.

    • Sounds like they may be misrepresenting the amounts owed, which if this is the case, you may have had your fair debt rights violated.
      Get a copy of your credit report, look for any letters they have sent you and give us a call for a no cost no obligation fair debt rights case review. 888-595-9111

  5. My old apartment that I surrendered has charged me fees that in a total came out to 3900 dollars, the collectors say there is a daily 5.5% interest, is that possible? Also, I have yet to receive a bill and the agent said that I was credited 850 dollars, but I never gave a forwarding address and it is no where to be. I’m completely confused… Please help.

    • That interest rate sounds pretty high. Have you received a collection letter or only phone calls? Was the collector you spoke with a third party debt collector or was it the property management company?
      If you have a letter(s) please fax to us 866-773-6152 or email to help@fair-debt-collection.com We will have an attorney review the facts and determine if their collection activity is violating your consumer rights. If we find a viable claim an attorney can represent you at no cost. The review of this matter is all done at no cost and there is no obligation to hire the attorney. Please give one of our legal assistants a call today. 888-595-9111

  6. My payroll check was garnish to pay a credit card debt. I satisfy the judgement of about 4k dollars. Recently I receive a letter fr my employer stating I need to pay additional interest of 1k. Is that legal in the state of Md? Shouldn’t their be something in writing from the court stating additional interest would be accruing

  7. I have an automobile loan that has been recently caught up after a repossession back in February of 2015. To be able to get my vehicle out of repossession I had to pay my loan up to date, an additional 3 months, plus any repossession fees. I have since kept my loan up to date and have only 5 payments left. I went to the credit union yesterday to find out why my bal-due on the remainder of the loan was double what I owed. They stated that I owe 31 late fees and the rest I assume would be interest on the late fees because my interest on the loan itself is included in the monthly installment. Is this legal, and if so why was I not made aware of this when I paid for my vehicle to be taken out of repossession with the credit union? My monthly installments are $567.03, leaving me a with a bal-due of $2,835.15. Their records show I owe 31 late fees totaling $930.00 and the remainder would be $502.25 which is interest on the late fees.

  8. Recently, I received a bill from a collection agency for services at a hospital in California. At no time did I enter into an agreement with the hospital to pay interest on the bill. Is a collection agency permitted by law to assess interest on a medical bill without my entering into an agreement with the hospital in California. Note: I am a California resident.

    Also, the collection agency claims the date of last payment was on April 25, 2014. I never paid any amount on the hospital bill. I have asked the collection agency to provide me with the information as to who made the payment and for how much. To date, they have failed to provide the information. According to my insurance carrier, they did not make a payment on the bill. In fact, they have not been billed by the hospital for the bill. Note: The itemized statement from the hospital bill does not show any payment was ever made on the bill. Could the collection have fabricated the date of last payment?

  9. So I have a medical bill that was sent to collections because I was 10 days late and now I’m being charged an interest rate. Can they do that? And when I asked if they could send me any paperwork about the 9% that I’m being charged they informed me that they don’t have any paperwork nor do they need to send it out. Is that correct?

  10. I have a outstanding balance from my previous apartment complex from 2011 it was 800.00 . I just apply for a rental house and was denied. I found out I had a account in collection from the apartment . I called to get it settled and the saided it was 2127.00 now because of interest is it legal to charge interest because I think the apartment had 800. 00 are less down . I ask to settle the acct# and now they are asking 1,100.

  11. Can an account that has been ‘assigned’ to a debt collector add interest and fees? How do the statements “Settled for full amount” and “Paid for full amount” differ and how does that affect the credit? How does the “Settled for less than the full amount” affect the credit? Is that a negative thing?

  12. I have had some miscellaneous medical bills turned over to a local collection agency. I’ve had some in the past from this same place and they never charged interest but now all of a sudden they are tacking on interest. I live in Iowa. Have the laws changed that allows them to do this? My total owed is around $250.00.

  13. I have a credit report from January of 2015 where it Cleary states I owe a collection account and amount of 700 dollars when the original bill is 6 and then I have one of 10/15 were their stating ibowe 760 when calling around September the collector stated that she was reaching out to me before it hit my report with more intrested rates again and if I wanted to pay it?? I disputed the item many times for the inaccuracy but are the 2 reports enough to do something legally?

  14. collection confused??

    I have a friend who got a bill turned into collection from a car accident. His fine was $1500.00. He was unable to pay that so it went to collection and now they are charging him $10,000! Can they do that? I believe through the courts he paid off the fine, he just has the fees added.

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