Can a Collection Agency Add Interest to My Debt in Michigan?

Often, a person's debt will be transferred to a collection agency. Instead of trying to convince the debtor to pay back the debt himself, the creditor who was originally owed the bill will either sell the debt to another party or have them attempt the collection on commission. While a collection agency in Michigan is allowed to enforce the terms of the debt, it is not allowed to add interest that is not called for in the original debt contract.

Debt Transfer

Just because a person owes a debt to a particular creditor, this does not necessarily mean that the debt will stay with that particular creditor. In fact, it is common practice for creditors to sell debt, particularly debt they cannot collect. When a debt is transferred to another party, the originally creditor is replaced and the new creditor receives the rights accorded to it by the debt contract.

Debt Contracts

Often, the contract from which a debt derives -- for example, a loan contract or a bill -- will contain clauses that allow the creditor to assess penalties if the debtor fails to pay the debt back on time. For example, most credit card companies specify in contracts that they are allowed to charge late fees to a debtor if he misses a payment, as well as raise the interest rate attached to the loan's principal.

Michigan Law

Under Michigan law, a collection agency is only allowed to collect the money agreed to under the contract that led to the debt. So, if a contract allows the creditor to fine the person for late payment or raise the interest rate on the outstanding balance, the collection agency can do this, so long as the contract is legally written. However, it cannot arbitrarily add interest, even to cover expenses of collecting the debt.

Penalties

Attempting to charge a debtor with extra money is a violation of federal law, specifically the Fair Debt Collection Practices Act. Any lender who illegally attempts to pass on costs of the collection or attempt to charge the debtor more money than he owes under another pretext may face civil penalties. These penalties may not just be paid to the government but may actually go to the debtor as compensation for damages.