Legal Question in Credit and Debt Law in California

I have a net 60 account with a client who owes us about $40K. They are 20 days late and we have told them that we will need to institute an interest payment for every 15 days they are late. We are charging them 0.344% per 15 days (which is less than the California state usury law). When we charge them, are we allowed to charge them in custom installments? For instance, we do not expect this payment to go uncollected for the entire year, so can I charge them 1% interest for the first ten 15-day periods? After the ten 15-day periods are over, the interest remains level until the full year is complete. This method ensures that the interest does not go over the 10% (stated by CA usury law per annum). If payment is made within one of the 15-day periods, do I have to prorate the charge (like if they pay on day 6 out of 15), or do they have to pay the full amount of interest I've stated between that 15-day period (as if they paid on day 15 out of 15)?


Asked on 8/10/10, 1:29 pm

1 Answer from Attorneys

David Gibbs The Gibbs Law Firm, APC

First, do you have a contract with the client that provides you can charge them interest on unpaid balances? If not, you may not be able to collect any interest until you file suit. Second, no, you cannot create and charge a stepped interest rate. The interest rate they agreed to pay must be charged in equal installments - a daily rate times the number of days late. What you propose is usurious, because if I understand you correctly, you want to charge 1% for each 15 days? That results in 24% annual interest. A court examining the issue of usury will consider the daily interest charged, not the stepped arrangement you propose.

*Due to the limitations of the LawGuru Forums, The Gibbs Law Firm, APC's (the "Firm") participation in responding to questions posted herein does not constitute legal advice, nor legal representation of the person or entity posting a question. No Attorney/Client relationship is or shall be construed to be created hereby. The information provided is general and requires that the poster obtain specific legal advice from an attorney. The poster shall not rely upon the information provided herein as legal advice nor as the basis for making any decisions of legal consequence. As required by 11 U.S.C. �528, we must now disclose that, "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code. Assistance we provide with respect to Debt Relief may involve bankruptcy relief under the Bankruptcy Code."

Read more
Answered on 8/18/10, 3:48 pm


Related Questions & Answers

More Credit, Debt and Collections Law questions and answers in California