What penalties or interest can creditors charge when settling debt?

In Washington, there are specific penalties and interest that creditors may charge when settling debt. The Washington State Department of Financial Institutions outlines the rules for interest and fees, including the maximum allowable interest rate that creditors can charge for settling debts. Interest rates on debt settlement agreements are generally determined by the Washington State Usury Law. This law states that creditors cannot charge more than 12 percent on debts that have been in default for more than 45 days. If the debt has been delinquent for less than 45 days, the interest rate cannot be greater than the contract rate. If debtors are unable to pay off their debt in the agreed-upon timeframe, creditors may also be able to impose late fees. These fees must be disclosed in the agreement and cannot exceed 5 percent of the amount due. Aside from late fees, creditors are also allowed to include certain administrative fees for processing the debt settlement. However, the fee must be reasonable and customary for debt collection services, and it cannot exceed 20 percent of the amount due. In any case, creditors have to provide written notice at least 30 days before the due date to inform debtors of pending late fees or other charges. This notice has to be in plain language and include the exact amount of the charges.

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What penalties or interest can creditors charge when settling debt?

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