Saturday, February 13, 2010

Can I Charge Interest

Many clients ask if they can charge interest to customers if invoices or statements are not paid within the time period set forth on the statement or invoice. The simple answer is yes. But when you can charge and how much you can charge is the question.

Simply saying a “a service charge on unpaid balances” is insufficient. ORC 1343.03(A) provides that a creditor is entitled to interest at the "legal rate" of interest on any money due on an account "unless a written contract provides a different rate of interest...." Under Ohio law, the annual rate of interest is determined each year by the Ohio Tax Commissioner. The creditor is permitted to charge this rate of interest unless the contract entered into between the creditor and their customer calls for a greater rate of interest.

So, for example, if your invoices state you will charge interest at the rate of 1½ percent per month (18% per annum) on any unpaid balance, a court will not enforce this rate unless the original contract calls for that interest rate. Otherwise, a court will only permit the interest rate prescribed by the Ohio Tax Commissioner. This year the rate is 4%.

So, if you intend to charge interest on the unpaid balance owed by customers, the maximum rate you can charge is the rate set by the Ohio Tax Commissioner each year. If you wish to charge a higher rate, you must set that rate in your contract with the customer.

This brings us to the discussion of compound interest. The rate set by the tax commissioner is simple interest. Therefore, you are not permitted to charge interest on the interest previously added to the balance unless your contract states otherwise.

The recent case of Mayer v. Medancic, 124 Ohio St. 3d 101, is a perfect example of this issue. In that case three creditors foreclosed on a debtor’s home and charged compound interest on the promissory notes signed by the debtor. None of the notes stated that the interest rate would be compounded.

In its opinion the court stated, “Simple interest is calculated only on principal and not on accumulated interest. Compound interest, on the other hand, is paid both on the principal and the previously accumulated interest. In other words, simple interest does not merge with the principal and thus does not become part of the base on which future interest is calculated.”

The court went on to say, “Because R.C. 1343.02 does not provide for it, compound interest is not available upon a default on a written instrument absent agreement of the parties or another statutory provision expressly authorizing it. However, upon a default on a written instrument, simple interest accrues on the entire amount owed, which includes both the principal and interest due and payable at that time.

Therefore, if your statement or invoice states a given rate of interest will be charged on the unpaid balance:

1. The interest rate can not be more than the simple interest rate set annually by the tax commissioner unless it is set forth in the contract between you and your customer, and

2. Can not be compounded unless it is set forth in the contract between you and your customer.

6 comments:

  1. Is the 4% set by the state of Ohio per month or per year?

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  2. Hi,
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  3. This comment has been removed by the author.

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  6. Your car might be stolen if you don't keep this in mind!

    Imagine that your car was taken! When you approach the police, they inquire about a specific "VIN decoder"

    A VIN decoder: What is it?

    Similar to a passport, the "VIN decoder" allows you to find out the date of the car's birth and the identity of its "parent"( manufacturing plant). You can also find out:

    1.The type of engine

    2.Model of a vehicle

    3.The DMV's limitations

    4.Number of drivers in this vehicle

    You'll be able to locate the car, and keeping in mind the code ensures your safety. The code can be viewed in the online database. The VIN is situated on various parts of the car to make it harder for thieves to steal, such as the first person's seat on the floor, the frame (often in trucks and SUVs), the spar, and other areas.

    What happens if the VIN is harmed on purpose?

    There are numerous circumstances that can result in VIN damage, but failing to have one will have unpleasant repercussions because it is illegal to intentionally harm a VIN in order to avoid going to jail or being arrested by the police. You could receive a fine of up to 80,000 rubles or spend two years in prison. You might be held up on the road by a teacher.

    Conclusion.

    The VIN decoder may help to save your car from theft. But where can you check the car reality? This is why we exist– VIN decoders!

    ReplyDelete