Can a Collection Agency Charge Interest on a Debt?

Hannah Locklear | December 14, 2022

Hannah Locklear
Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Debt collectors ^^

Summary: Debt collection agencies can charge interest on a debt if that interest was outlined and included in the original agreement. That being said, collection agencies must follow all laws and regulations concerning interest rates and debt collection practices. SoloSuit can help you protect yourself from unfair debt collection methods and beat collectors at their own game.

If you are suffering from financial troubles and are unable to pay off your debts, debt collectors may end up calling. There is a chance your original creditor hired a collection agency to help them recover the money, or they might have sold the debt account to a debt buyer.

Regardless, when a debt collector contacts you about a debt you supposedly owe, you might notice the amount you previously owed has gone up. This may be because of added interest. You’re probably wondering, This is legal, but a collection agency is only allowed to charge interest on a debt that you owe according to what is the original creditor agreement.

In this article, we’ll break down everything you should know about debt collectors charging interest. Let’s get right to it.

Use SoloSuit to make a defense against debt collectors and win your case.

Collection agencies can charge interest on a debt

When debt collectors come calling, you may find yourself asking, “do collection agencies charge interest?”

According to the Consumer Financial Protection Bureau, a debt collection agency can collect interest on a debt only if the original loan or credit agreement allows it and there are no laws in place that prevent such fees.

If the original agreement doesn’t mention anything about interest or fees, debt collectors cannot charge anything more than the original debt amount (and potentially court costs, if a debt lawsuit is in question).

How much interest can a collection agency charge?

The answer is simple: whatever was outlined in the agreement. If the interest rate was 5% when you signed a credit card agreement, then collections agencies can most likely charge the same amount, but nothing more.

So, can collection agencies charge more than you owe? The answer is yes, they can charge what you owe plus interest, but only as outlined in your original agreement.

That being said, it’s important to check your state laws on interest rates and fees, especially in connection with debt collectors. Interest rate laws vary by state.

Can collection agencies charge interest on medical bills?

Medical bills rarely charge interest, so if a debt collector claims you owe a medical debt plus interest, they’re probably lying.

The only circumstance in which a medical bill might include interest is if you’ve signed up for a medical loan with entities such as AccessOne, MedCredit Financial Services, the CareCredit credit card, or anything similar. These are some examples of predatory medical lending that can result in medical bills that accrue huge interest rates—some as high as 27%.

Be careful when you make any agreements to pay off medical bills. Typically, hospitals cannot charge interest unless you sign up for an agreement that includes it. Be careful when considering payment plans and options for medical bills.

Dealing with health concerns on top of medical debt is stressful and can lead to further health problems. You don’t have to fight medical debt alone. SoloSuit can help.

Your rights as a consumer

As a consumer with debt, you need to know that you have rights. There are a few reasons why you might feel stressed about debt, whether it is contentious, you believe it does not belong to you, or if it is extremely high. Despite all the negative feelings that come with owing debt, knowing your rights will help you handle it more easily and give you a great peace of mind.

For example, although a debt collector does have a right to collect on a debt that they owe, they still need to abide by the Fair Debt Collection Practices Act (FDCPA). These are laws that govern how debt collectors are allowed to operate, act, and speak to you.

Here are some debt collection rules outlined in the FDCPA:

  • Debt collectors cannot call you before 8 a.m. or after 9 p.m. to discuss a debt.
  • Debt collectors cannot use vulgar, obscene, or threatening language to intimidate you into paying off a debt.
  • Debt collectors cannot discuss your debt with your friends or family members.
  • Debt collectors cannot call you at your workplace.
  • Debt collectors cannot pretend to be law enforcement or government workers.
  • Debt collectors cannot threaten to take legal action that they cannot, or do not plan to, take.

Below, we outline a few other laws by which debt collectors must abide. You can use these laws to your advantage and protect yourself from unfair practices.

You can use the statute of limitations

One thing that debt collectors do not want you to know is that your debt is subject to the statute of limitations. This is a law that specifies how long you can be sued for debt and brought to court. Each state has its own time frame, which is typically around four to six years. It is also important to know that if you make a payment on the account, it will start this period over again. If you get a call regarding an old debt, be sure to check the statute of limitations in your state.

You are not responsible for zombie debts

Collection accounts are often resold more than once. This means that you might receive a call from a debt collector that is outside of the statute of limitations or one that you do not even owe. This is illegal if you no longer owe a debt, but they still might attempt to get you to pay. Be sure to get all the details before admitting you owed a debt, otherwise it might restart the time frame on that debt.

Pick the right affirmative defense with SoloSuit.

You can ask for proof of the debt

The FDCPA requires a debt collector to send a statement that explains all the specifics of the debt within five days of contacting you. This is important because this will help you determine if you actually owe the debt.

You can also always ask for the debt collector to prove that you do owe the debt by sending a Debt Validation Letter. This forces the debt collector to prove the exact amount of money you owe, how much interest should be fairly charged according to the original contract, the name of the original creditor, and what actions you should take if you want to contest the debt.

Watch this video to learn more about how a Debt Validation Letter can help you stop debt collectors in their tracks:

You can ask a debt collector to stop calling you

According to the FDCPA, a debt collector must stop contacting you if you request that they do so. This is typically done in the form of a letter. Although you will still need to pay for your debt if you owe it, it can stop the constant phone calls. If a debt collector is constantly calling you, it might already violate the FDCPA. Under these laws, the debt collector cannot call too many times per day, and only between the hours of 8 am and 9 pm. Otherwise, they are directly violating your rights.

If you are looking to avoid your debt going to collections in the first place, you need to make sure that you do not fall behind on your payments. Despite this, if you do, be sure to keep an eye on your mail, and anything you receive from debt collectors. They are allowed to require you to pay interest, but only what is allowed by law, and in your original contract.

Use SoloSuit to beat debt collectors in court

If you’ve ended up being sued by a debt collector, don’t lose hope. You still have options.

The first step to defending yourself in court against a debt collector is to respond to the lawsuit. You can do this by filing an Answer into the case. Here’s how.

Follow these three steps to respond to a debt collection lawsuit:

  1. Answer each claim against you, as listed in the Complaint. When you get sued, you should receive a Summons and Complaint (also known as a Petition in some states). The Complaint lists all the specific claims against you. The first section of your Answer should focus on responding to each claim as listed in the Complaint. You can admit, deny, or deny due to lack of knowledge. Most attorneys recommend denying as many claims as possible to give yourself a strong case.

  2. Assert your affirmative defenses. This is where you get to tell your side of the story. An affirmative defense is any legal reason that you shouldn’t be charged or have a judgment entered against you. Earlier in this article, we discussed the statute of limitations. This is one of the most common defenses for a debt collection case. Click here to learn more about other affirmative defenses you could use.

  3. File your Answer with the court, and send a copy to the opposing lawyer. Once you’ve drafted your Answer, be sure to file it with the court and send a copy to the opposing attorney. Send everything via USPS certified mail with a return receipt requested.

Now, let’s take a look at an example.

Example: Marco is being sued by a debt collection agency for a credit card debt. They claim he owes $1,000 plus interest and court costs. Marco uses SoloSuit to respond to the lawsuit, denying that he owes the added interest. According to Marco’s original credit card agreement, no interest should be added to the debt. In his Answer, Marco clearly states this, and the debt collection agency ends up dismissing the case with prejudice in the hopes they can refile a future case and change their claims.


You can learn more about these three steps in this video:

What is Solo?

Solo makes it easy to resolve debt with debt collectors.

You can use SoloSuit to respond to a debt lawsuit, to send letters to collectors, and even to settle a debt. SoloSuit's Answer service is a step-by-step web-app that asks you all the necessary questions to complete your Answer. Upon completion, we'll have an attorney review your document and we'll file it for you.

SoloSettle can help you contact your debt collector or creditor and negotiate the debt to settle for less, all online. It simplifies and streamlines the process to settling your debt.

No matter where you find yourself in the debt collection process, Solo is here to help you resolve your debt.

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The Debt Hotline

Hosted by Team Solo, The Debt Hotline breaks down debt and personal finance topics with help from attorneys, financial experts, and industry pros. We respond to real questions to help you navigate debt with knowledge and courage.

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