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As if being in debt wasn’t already bad enough, having interest thrown on top of it is like adding insult to injury.
When dealing with debt collectors, many consumers are surprised to learn that the amount they owe may be increasing due to interest charges. This raises an important question: Can debt collectors legally charge interest on the debts they’re trying to collect? The answer is not always straightforward and depends on various factors.
This article will explore the legalities surrounding interest charges by debt collectors, the circumstances under which they can add interest, and what you need to know to protect your rights as a consumer.
Yes or no?
The short answer is: Yes, in many cases, debt collectors can charge interest, but with important caveats and limitations…
- Original contract terms: If the original agreement with the creditor allowed for interest charges, the debt collector may continue to charge interest at the agreed-upon rate. That said, the collector must adhere to the terms of the original contract.
- State law compliance: Debt collectors must comply with state laws regarding interest rates and charges. Some states have maximum interest rates that can be charged on debts (usury laws).
- Disclosure requirements: Under the Fair Debt Collection Practices Act (FDCPA), debt collectors must clearly disclose the amount of the debt, including any interest or fees. Additionally, they cannot misrepresent the amount owed.
- Original creditor vs. debt buyer: Original creditors who collect their own debts are often not bound by the FDCPA and may have more leeway in charging interest, while third-party debt collectors and debt buyers are subject to stricter federal regulations.
- Court judgments: If a debt collector obtains a court judgment against you, the court may allow for post-judgment interest. This interest rate is often set by state law and may differ from the original contract rate.
Scenarios where interest may be charged
These are the most common scenarios where you can expect to be charged interest…
- Credit card debt: Most credit card agreements allow for continued interest charges on unpaid balances. Debt collectors may continue charging this interest if they are collecting on behalf of the original creditor.
- Personal loans: If the loan agreement included provisions for interest on late or unpaid balances, collectors may continue charging this interest.
- Medical debt: Typically does not accrue interest initially, but may do so if a payment plan is established or if the debt goes to collections.
- Student loans: Federal student loans continue to accrue interest even in collections. Private student loans may accrue interest based on the loan agreement.
Limitations on interest charges
While debt collectors can charge interest in many cases, there are (thankfully) important limitations…
- Cannot exceed original agreement: Collectors cannot charge higher interest rates than those specified in the original contract.
- State usury laws: Must comply with state-specific caps on interest rates.
- Proper notification: Collectors must inform you of any interest charges as part of the total amount owed.
- No “interest on interest”: In most cases, collectors cannot charge interest on already accrued interest.
- Statute of limitations: Once a debt is time-barred, collectors generally cannot continue adding interest.
Your rights as a consumer
Just because you owe money doesn’t mean you don’t have rights. Knowing them can have a huge impact on how you manage your financial situation, and allow you to take proactive steps to address any interest charges you may be facing…
- Document everything: Keep detailed records of all communications with debt collectors.
- Right to information: You have the right to request a detailed breakdown of your debt, including principal, interest, and fees.
- Debt verification: You can request debt verification, which should include information about any interest charges.
- Dispute inaccuracies: If you believe interest is being charged incorrectly, you have the right to dispute the debt.
- Negotiate interest charges: In some cases, you may be able to negotiate with the collector to reduce or eliminate interest charges.
- Seek legal advice: If you’re unsure about the legality of interest charges, consult with a consumer protection attorney.
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There’s always JG Wentworth…
If you have $10,000 or more in unsecured debt, there’s a good chance you’ll qualify for the JG Wentworth Debt Relief Program.* We’ve helped countless individuals in your shoes . Some of our program perks include:
- One monthly program payment
- We negotiate on your behalf
- Average debt resolution in as little as 48-60 months
- 24/7 support
- We only get paid when we settle your debt
If you think you qualify for our program, give us a call today so we can go over the best options for your specific financial needs. Why go it alone when you can have a dedicated team on your side?
The bottom line
While debt collectors can charge interest in many cases, they must do so within the bounds of the law and the original agreement. As a consumer, it’s crucial to understand your rights and the limitations placed on debt collectors. Always request detailed information about your debt, including how interest is being calculated.
If you find yourself facing high interest charges from debt collectors, don’t hesitate to seek clarification, dispute inaccuracies, or negotiate for better terms. Remember that knowledge is power when it comes to managing your debts. By staying informed and proactive, you can better navigate the complex world of debt collection and protect your financial interests.
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The information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that You consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions.
* Program length varies depending on individual situation. Programs are between 24 and 60 months in length. Clients who are able to stay with the program and get all their debt settled realize approximate savings of 51% before our 25% program fee. This is a Debt resolution program provided by JGW Debt Settlement, LLC (“JGW” of “Us”). JGW offers this program in the following states: AL, AK, AZ, AR, CA, CO, FL, ID, IN, IA, KY, LA, MD, MA, MI, MS, MO, MT, NE, NM, NV, NY, NC, OK, PA, SD, TN, TX, UT, VA, DC, and WI. If a consumer residing in CT, GA, HI, IL, KS, ME, NH, NJ, OH, RI, SC and VT contacts Us we may connect them with a law firm that provides debt resolution services in their state. JGW is licensed/registered to provide debt resolution services in states where licensing/registration is required.
Debt resolution program results will vary by individual situation. As such, debt resolution services are not appropriate for everyone. Not all debts are eligible for enrollment. Not all individuals who enroll complete our program for various reasons, including their ability to save sufficient funds. Savings resulting from successful negotiations may result in tax consequences, please consult with a tax professional regarding these consequences. The use of the debt settlement services and the failure to make payments to creditors: (1) Will likely adversely affect your creditworthiness (credit rating/credit score) and make it harder to obtain credit; (2) May result in your being subject to collections or being sued by creditors or debt collectors; and (3) May increase the amount of money you owe due to the accrual of fees and interest by creditors or debt collectors. Failure to pay your monthly bills in a timely manner will result in increased balances and will harm your credit rating. Not all creditors will agree to reduce principal balance, and they may pursue collection, including lawsuits. JGW’s fees are calculated based on a percentage of the debt enrolled in the program. Read and understand the program agreement prior to enrollment.
JG Wentworth does not pay or assume any debts or provide legal, financial, tax advice, or credit repair services. You should consult with independent professionals for such advice or services. Please consult with a bankruptcy attorney for information on bankruptcy.