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QUESTION: LATE CHARGES AND INTEREST ON WHAT'S OWED TO YOU
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Ken
You mentioned on your page that it is legal to charge 18% interest in addition to a 5% late charge. Your page says:
It's not uncommon to see provisions for late fees and interest charges in contracts. Typically a provision for a late fee may add 5% of the payment after a grace period of 10 to 20 days. Also, an interest charge of 18% or 1.5% per month is often found in contracts. There are "legal" rates of interest you are permitted to charge [16% in New York for an individual and 24% to a corporation], but those limits do no apply in a default situation, so you can use the higher rate.
In Florida, are interest and late charges considered one in the same? I understand that the maximum interest rate in Florida is 18%. Can I also collect a 5% late charge when the customer has been in default on his monthly payment for more than 30 days?
name withheld
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ANSWER
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This answer was prepared by Jesse Kirschenbaum,Esq.
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Under Florida law, it is usurious and unlawful for any person or company to reserve, charge, or enforce the collection of interest payments that exceed a rate of 18% annually.
In commercial transactions, any merchant or person who extends any form of credit may impose a late charge on delinquent payments if the contract so provides. This is applicable to alarm installation and monitoring contracts where the customer pays a monthly fee in exchange for the alarm installation and/or monitoring services. Florida law permits late charges so long as: (1) it does not exceed 5% of the monthly payment and (2) the customer is in default for 10 days or longer. Late charges have no effect on the limit on interest charges, therefore it is lawful to collect a 5% late charge in addition to 18% interest when the contract so provides.
It is important to comply with Florida law regarding interest charges because any attempt to charge a customer greater than 18% interest will result in forfeiture of any interest payments and only the actual principal sum of the contract can be collected. Moreover, any merchant or person who intentionally charges interest at a rate of 25% is subject to criminal penalties under Florida law.
Although Florida law allows for late charges not to exceed 5% in addition to interest charges, whether or not these charges may actually be collected depends entirely on whether the contract is properly drafted and thereby enforceable. Failure to correctly provide for such charges in a contract can not only preclude the collections of the charges, but can affect other aspects of the contract as well. For instance, a contract provision that imposes interest charges and late charges must be properly worded or the company imposing these charges will not be able to recover attorney’s fees incurred in a legal proceeding commenced to collect such interest and late charges.
Alarm companies are constantly dealing with subscribers who default on their payment due under monitoring contracts. The headache of dealing with defaulting subscribers is often rectified by the ability to collect late charges on delinquent payments in addition to interest charges on the remaining balance. When a subscriber defaults, alarm companies are often left with no choice but to sue for the money they are owed. As most alarm companies discover, suing for the money can be very expensive due to the attorney’s fees, court costs, and wages paid to employees tasked with managing such recovery efforts. Now imagine having to deal with these defaulting subscribers while not being able to collect interest on the remaining balance of the contract, late charges on delinquent payments, and other charges such as attorney’s fees incurred in attempting to collect these payments. If you are using poorly drafted contracts that you drafted yourself or obtained from an attorney with minimal experience in alarm installation and/or monitoring contracts, then you don’t have to imagine for too long because you will likely experience the awful process of trying to collect from a defaulting experience in court in the near future.
Which brings me to my next point, why in the world would you not do everything in your power to avoid this! If you obtain a properly drafted contract then you don’t have to worry about whether or not you will be able to collect interest and late charges. You won’t have to worry about not being able to recover the amount you spent on attorney’s fees just trying to collect the amount you are already owed under the contract. Our contracts (www.alarmcontracts.com) have been upheld and enforced in every state and alarm companies using our contracts have benefitted greatly from the financial benefits of using Kirschenbaum Contracts when signing up subscribers.
Florida is just one of many states that impose strict requirements on interest rates and late charges. One of the most important things alarm companies must do to succeed in the security industry is to contractually protect themselves from legal liability and preserve their right to collect interest, late charges, and attorney’s fees. Something that is often overlooked by alarm companies across the country is that a contract drafted for use in one state is usually not compliant with the laws of another. Operating in multiple states requires obtaining multiple contracts. Each state has different requirements, so if you are using the same contract for multiple states it is time you look into purchasing state specific contracts before one of your customers catches on and decides not to pay on the contract knowing there is not much you can do about it. If you want to maximize your success on all of your subscriber accounts, make sure your contracts cover you to the fullest extent permitted by law.