A debt collection agency or creditor in Massachusetts may charge interest within the boundaries of the law when attempting to collect on a debt. The law in the state places caps on the interest rate a collection agency or creditor may charge depending on the type of debt in question.
Caps on Contracts
Massachusetts laws places a cap on the interest a creditor or debt collection agency may charge when seeking repayment. According to BCS Alliance, a credit information website, the maximum interest rate a creditor or collection agency may charge on a written contract is 12 percent. A credit card company is an exception to this rule since the company can assess a variable interest rate on purchases made over the life of the account, which can take the interest rate over the state maximum.
Court Judgment Interest
A creditor or collection agency winning a court judgment against a debtor may only charge a maximum interest rate of 12 percent on the balance owed. This enables the creditor or collection agency to recoup any related fees associated with the filing of a court judgment while still allowing the debtor an opportunity to pay down her obligation in a reasonable amount of time. The statute of limitations on a court judgment in Massachusetts is 20 years, according to BCS Alliance. This gives a creditor or collection agency ample time to collect the debt once the judgment is in hand.
Wage Garnishment Rules
A creditor or debt collection agency winning a judgment against a debtor may move to garnish the debtor's wages to satisfy the debt owed. Massachusetts has different garnishment rules than those established by the federal government and only allows a debtor to exempt up to $125 per week from garnishment. If a creditor or collection agency attempts to garnish a debtor in excess of the 25 percent federal limit, a debtor may invoke federal law to cap the wage garnishment. The collection agency or creditor may still charge the maximum interest rate when garnishing a debtor's wages.
Preventing Negative Amortization
Negative amortization is a financial phenomenon where a creditor's interest rate and fees are so high, even a debtor making a minimum payment and not using the account to make additional purchases will still cause the account balance to increase. The cap on interest rates in Massachusetts, and other states across the country, is in place to help prevent negative amortization and allow each debtor the same chance to pay down financial obligations and maintain good credit.
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