Can a Debt Collector Charge Interest on Medical Bills?
Unpack the rules around debt collectors adding interest to medical bills. Know your consumer rights and how to address questionable charges.
Medical bills can become confusing, especially when they turn into debt and involve collection agencies. A common concern is whether a debt collector can add interest charges to an outstanding medical balance. This article explains the circumstances under which interest may be applied to medical debt by collection agencies and outlines consumer rights.
How Medical Bills Become Collectible Debt
Medical services are typically billed to health insurance. After processing, any remaining balance not covered is billed directly to the patient. This initial bill usually does not include interest, though payment terms are outlined. If unpaid after 60 to 180 days, the healthcare provider may consider it delinquent.
Once overdue, the original healthcare provider might send the bill to an internal collections department or a third-party collection agency. Sometimes, the provider sells the debt to a debt buyer. This transition from an original bill to a collectible debt signifies that the financial obligation is now actively being pursued for payment. At this stage, the original healthcare provider is the original creditor, and the entity pursuing payment is the debt collector, which could be an agency or a debt buyer.
General Legal Principles Governing Interest on Debt
Interest charges on debt generally stem from either a contractual agreement or statutory provisions. A contractual agreement is established when an individual agrees to terms of service that explicitly state interest will accrue on overdue balances. Many patient intake forms or financial agreements with healthcare providers contain clauses permitting interest if a bill is not paid within a specified timeframe. The terms of this original agreement are foundational to whether interest can be applied later.
State laws dictate maximum interest rates, often called usury laws. These laws set limits to prevent excessive charges and protect consumers. Interest is also classified as pre-judgment interest and post-judgment interest. Pre-judgment interest accrues on a debt before a court issues a formal judgment, often based on a contract or statute.
Post-judgment interest accrues on the total amount of a court-ordered judgment. This interest is nearly always permitted by state law and is added to the judgment amount until it is fully satisfied. The rate for post-judgment interest is typically set by statute and can vary by state. The ability to charge interest depends on the initial agreement, applicable state laws, and whether a court judgment has been obtained.
Specific Rules for Debt Collectors Adding Interest to Medical Bills
A debt collector’s ability to charge interest on medical bills depends heavily on several factors, including whether they are collecting on behalf of the original provider or if they have purchased the debt, and relevant state laws. If the original medical provider had a right to charge interest on the overdue balance through a patient agreement or state regulations, a debt collector acting as an agent for that provider may continue applying that interest. This means the collector acts as an extension of the original creditor, enforcing initial terms. The legitimacy of such interest depends on the clarity and enforceability of the initial agreement.
When a debt collector purchases medical debt, their ability to add interest is more complex and subject to stricter state regulations. Many states prohibit or limit interest on purchased medical debt to protect consumers. While some states permit interest, they may cap the rate or require the original agreement to have explicitly allowed such charges. The debt purchase agreement does not automatically grant the debt buyer the right to charge interest if it was not allowed or is prohibited under state law.
Interest can almost certainly be applied to medical debt after a court judgment has been obtained against the consumer. If a debt collector sues an individual and secures a court order, they can charge post-judgment interest on the entire judgment amount. This interest is permitted by state law and applies to the total outstanding balance, including principal, fees, and pre-judgment interest from the court’s award. Federal laws, like the Fair Debt Collection Practices Act (FDCPA), regulate debt collector conduct and communication about debts, including interest. However, the FDCPA does not grant or deny the right to charge interest; this right is determined by the original contract and relevant state laws.
Understanding and Exercising Your Rights Regarding Medical Debt Interest
Consumers have specific protections under federal and state laws regarding debt accuracy and collection, including any associated interest charges. The Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from misrepresenting a debt’s amount or legal status, which includes interest. This means a debt collector cannot add interest unless it is expressly permitted by the original agreement or law. Consumers have the right to request validation of the debt from the collector, and this validation should include a detailed breakdown of the principal amount, how interest was calculated, and the legal basis for charging it.
If the original agreement with the healthcare provider did not stipulate interest, or if state law prohibits interest on the specific medical debt, the debt collector generally cannot add it. It is important for consumers to review all documentation carefully to understand the terms under which the original bill was incurred. This initial review helps determine if any interest charged by a debt collector is legitimate. The burden is on the debt collector to prove their right to charge interest.
If a consumer believes interest charges are unlawful or incorrect, they should formally dispute them in writing. The dispute letter should include the account number, the contested interest amount, the reason for the dispute, and a request for validation, along with supporting documentation. Sending this letter via certified mail with a return receipt provides proof of delivery. Maintaining thorough records of all communications with the debt collector, including dates, times, names of individuals spoken to, and conversation summaries, is also advisable. If a debt collector continues to pursue disputed interest that is not legally permissible, consumers may consider reporting the collector to relevant consumer protection agencies or consulting with a legal aid organization or attorney specializing in consumer law.