Can debt collectors charge interest in Australia? 

In Australia, a debt collector or collections agency cannot charge additional fees or interest to the debtor beyond those outlined in the original contract. Debt collectors either purchase the outstanding debt from the creditor or pursue the owed funds on their behalf for a creditor fee. Owed parties might avoid the involvement of debt collectors by prioritising collections from debtors and trading partners flagged as high-risk.  

What are debt collectors? 

Debt collectors are a last resort for recouping owed funds. Creditors use this service if they determine that a debtor is unlikely to repay the money they owe otherwise. Usually, owed businesses will follow an in-house process for collections using resources such as those found in CreditorWatch Collect to recover the funds before involving a third party.  

If a debtor fails to respond to standard communication and steps such as a ‘Letter of demand’ or a ‘Final notice’, the creditor might enlist the services of a debt collector. This service does however come at a price for the creditor. These third parties will either buy the outstanding debt outright from the creditor and keep any further funds recouped or act in their interests for a fee between 5-30%. The process can often get drawn out for long periods, potentially jeopardising long-standing relationships or seeing both parties wind up in court.  

Debt collectors must also operate according to strict guidelines outlined by the ACCC. As such, they must not use coercion, physical force, undue harassment, or deception to recover the money owed. Any debt collector misconduct can be reported to the ACCC to inform their enforcement efforts.  

Debt collectors and interest charges 

Are debt collectors allowed to charge interest? 

So, can debt collectors add interest outside of the original contract? Debt collectors cannot demand interest or fees other than those explicitly outlined in the original contract. If no interest rate or late fee applies to outstanding credit in that contract, the debt collector cannot charge it after the fact. Any debt collector service fees (which can vary between 5-30% of the owed amount) are paid by the creditor enlisting their help, not by the owing party.  

However, if an interest rate or fee on outstanding credit is outlined within the original contract, the debt collector can apply it. 

How much interest can debt collectors charge? 

It all depends on the stipulations of the loan agreement. Debtors should carefully read and understand the terms and conditions of any credit arrangement before signing to avoid the surprise of hidden fees or interest charges that accumulate on outstanding money.  

Does the interest on debt have to be paid to a debt collector? 

If the original loan contract stipulates an interest rate on outstanding credit, then the debtor has to fulfil those obligations to the best of their ability. Failure to do so may result in legal action against the debtor from the creditor/debt collector or the declaration of personal bankruptcy or corporate insolvency.  

If a debtor believes they are being charged undue or unfair interest on a loan or credit card or want to report malpractice from a debt collector, they should consult independent legal advice or contact a consumer protection agency.  

Prioritise collections and protect cash flow with CreditorWatch Collect 

Engaging a debt collector can quickly become a drawn-out, costly and tedious exercise for Australian businesses. The best practice is to adopt collections resources and tools that offer the highest chance of recovering money owed before it ever gets that far. 

CreditorWatch Collect automates your collections process. From pre-reminder notifications right through to a payment portal. Features such as SMS reminders, customisable workflows and easy integrations, help streamline your end to end collections process.  

Reduce manual tasks, save time and get paid faster with CreditorWatch Collect. Speak to our expert team today.