Interest rules for overdue accounts

Press, 14 June 1978, Page 14

Interest rules for overdue accounts

LEGAL LOBBY By the New Zealand Legal Association

The practice of charging interest on accounts overdue for payment is the Subject of considerable misunderstanding both by the businessmen entitled to charge interest and the people Hable to pay it. A study of the law on the subject indicates that it is a very old practice which has only recently come into widespread use again.

It is now common for wholesalers and retailers, and. to a lesser extent, people or firms providing services, to add interest to accounts which are not paid within the normal time for payment.

The time for payment varies from one business to another. Retail stores normally send accounts to customers in monthly cycles. The accounts may be up to the end of each month, or from a day of one month to the same day of the next month, and payment is usually required within one month of the closing date of the account.

Other firms send accounts made up to the end of the month, and req iring payment by the twentieth day of the next month. The account may state that if the amount due is not paid by the due date, interest will be charged at 1 cent or 1) cents in the dollar per month — that is, 12 per cent or 18 per cent per annum. If this does not appear on the original account, the customer may later be notified that interest will be charged from the day after the date of the letter, or some later date, if the account is still not paid.

Occasionally a shop will display a notice stating that interest will be charged at a specified rate on unpaid accounts. This is perfectly legal, a;.d can readily be enforced. However, it is seldom legal to charge interest before the date when it is first brought to the attention of the customer that he will be charged interest if he does not pay the account.

The reasoning behind this is that the customer has a choice when he is told that he will be charged interest if he does

not pay the account by the due date. He can either pay it by the due date and pay no interest; or he can leave it, knowing that interest will be charged.

If the customer does not pay it when it is due, and he knows that interest will be charged, his failure to pay by the due date amounts to an agreement on his part to pay the interest.

This is not an unfair practice, as most firms these days can carry overdue accounts only by borrowing money at interest rates in excess of 12 per cent.

From the businessman’s point of view, all that is needed is to print, or rub-

ber-stamp on to accounts: ‘ Compound interest added to accounts not paid bv twentieth of the month following date of purchase, at 1 per cent for each complete month or part of a month" — or wording similar to that. The only difficulty for the businessman in recovering interest on accounts is that interest over 10 per cent per annum cannot be sued for under a default summons in the Magistrate’s Court, and the slower procedure of an ordinary summons must be used; so that on small accounts it may be better to forgo the interest over 10 per cent when it comes to issuing a summons. A person who is getting well behind with payment of his accounts will usually receive a letter from a solicitor or a debt collector before he receives a sum .ions. A debtor is not liable to pay anything towards the fees of a debt collector acting for a creditor, nor is he liable to pay anything towards the creditor’s solicitor’s fees until court proceedings are started to recover the debt. From that time the debtor is liable to pay court fees and solicitor’s fees as shown on the court papers, even if the full amount of the account is paid after the court proceedings have started but before the debtor receives the summons. People who find they are unable to pay their debts should seek legal advice immediately. There are various ways of dealing with such a situation, and a further article will be on this topic.