Can Debt Buyers Charge Interest on an Old Credit Card Debt?

Debt collectors often resort to hardball tactics to get people to pay up; the Federal Trade Commission received over 67,000 complaints of harassment in 2009. If a debt collector threatens to add interest on old credit card debt, however, he may have the legal right to do so. You will have to review your original credit card agreement to determine the legitimacy of interest charges.

Identification

A debt buyer may charge interest on old credit card debt if the original agreement with the creditor and lender specifies this can occur when the account goes to collections. Alternatively, even if the credit card agreement does not mention interest, the debt collector can charge it if state law expressly permits it. In New York, for instance, debt collectors can charge 9 percent interest on old debts when no agreement exists.

Considerations

Debt collectors are limited in the amount of interest they can charge by state law. Since 1978, the state of residence of the creditor determines the usury limit. Because a few states put no limit on interest rates, most creditors go to these business havens to avoid state usury laws.

Other Charges

In most states, debt collectors can charge debtors for the legal fees incurred when pursuing litigation. Some jurisdictions may even allow the debt buyer to charge interest on a judgment. The federal Fair Debt Collection Practices Act is silent on interest charges, so all interest charge and fee decisions are deferred to the states.

Tip

If a debt collector can legally charge interest, you can at least make sure he charges interest on the correct amount of debt. The FDCPA allows consumers to request debt collectors itemize and verify all charges of delinquent debt within five days of a request. Also, the debt collector must send you a copy of your original credit card agreement and inform you how to dispute any charges.