A recently revised SearchPoint document provides information on state interest rates.
12/30/2019 10:30
Under the Fair Debt Collection Practices Act, the addition of any interest, service fees, collection costs or other expenses incidental to the original debt is permitted when “such amount is expressly authorized by the agreement creating the debt or permitted by law.” This includes state laws, and debt collectors who want to charge interest in a compliant manner should learn the nuances of state interest rates.
Just like other areas of law, states have their own individual system of interest rates and ways they may be applied. Many states restrict the addition of interest above a particular amount regardless of the rate specified in the contract. For example, one state does not allow interest to be charged at a rate of more than 24% per year in a written contract. Another state does not allow interest in contracts to exceed 7% per year.
Some state provisions allow interest to be charged above the state’s maximum rate, provided the contract creating the debt allows the higher rate to be charged.
One state in that group allows interest to be agreed upon by the parties in excess of state maximums for certain types of loans specified in the statute. Another state allows any rate that may be authorized by law.
Additionally, some states further restrict how interest and other charges are applied by collection agencies.
In addition to contracts, states also have set limits for judgment interest. For example, some states allow judgment interest to accrue at a specified rate on the principal amount of the judgment that remains unsatisfied and set the judgment interest at the same amount as the original contract.
Debt collectors will want to make sure they are following state laws when attempting to collect interest from consumers. Debt collectors wanting to know more about state interest rates can review the ACA SearchPoint document #2015, State Interest Rates. Because some states further restrict how interest and other charges are applied by collection agencies, it may be necessary to review ACA SearchPoint document #8000, Adding Fees to Debts, when determining the rate of interest to apply to a debt.
This article was published in the December 2019 edition of Collector magazine.
Have you checked out ACA’s member-only SearchPoint library? ACA SearchPoint is filled with documents that put important compliance information related to the FDCPA, FCRA, TCPA, state laws and many other topics at your fingertips.
For more information on how the ACA Licensing staff can assist with your licensing needs, please contact us at [email protected] or call (952) 926-6547.