The 12% per annum should be based on the interest rate and is the default in Washington. If you do have a contract for higher interest, then it is allowable. The creditor should not be able to put interest on interest. Only interest on the principal should be allowed and if there is no contract, the interest defaults to 12% per annum. Judge's frown on interest on interest and often strike it when it comes right down to being in court over a debt. Judge's also do not like what is called "collection costs" and will not allow both collection costs AND interest being included in a judgment. The $400 year end charge you refer to in your question is most likely "collection costs" they tack on pursuant to RCW 19.16; however, as I already stated, courts frown on both collection costs and interest being added to a debt. The collection agency needs to choose one or the other: either charging the interest or charging the collection costs. They would probably be better to choose the interest because courts really do not like awarding "collection costs."
This is not legal advice from an attorney you retained nor am I representing you.Ask a similar question
It depends on their basis for applying this interest rate. Is the interest based on the contract you had for this debt, or on Washington's statutory interest rate?
WA's statutory interest rat is 12%, so it may be that.
If based on contract then you will have to look at the language in the contract about interest. Some contracts, like credit card contacts, allow interest to be added to the principal (compound interest).
If based on statutory then they have no right to be adding interest to the principal.
In addition, if they have obtained a judgment against you for this debt, then they have no right to be adding interest to the principal post judgment, regardless of basis for interest.
Contact a local consumer law attorney if you believe the agency is doing this wrong.
Best of luck,
Tim L Eblen