Have you ever been charged a fee for missing or being late on a payment? If so, you need to read this blog, as we’re going to tell you when a business can – and cannot – issue these kinds of penalties.

When you enter into a credit agreement (also known as a “loan contract”), it’s important to know that, aside from three very specific circumstances, a business (known as the “creditor”) generally cannot charge you extra fees or penalties due to late or missed payments (this can be found in Section 75 of the Business Practices and Consumer Protection Act in Part 5 — Disclosure of the Cost of Consumer Credit).

3 instances when a creditor IS allowed to issue a late payment or default fee (in relation to a credit agreement or loan contract):

  1. When you’re sued in court. If you’re taken to court for being late or not paying your debt, the court can order you to pay certain costs that were incurred by the creditor who’s collecting or attempting to collect the debt.
  2. When a bank doesn’t honour your payment. If the cheque or pre-authorized debit isn’t honoured by your bank, you could be on the hook for a “non-sufficient funds” charge (also known as an “NSF fee”). It’s important to know that this NSF fee must be reasonable, and reflect the costs actually incurred by the creditor as a result of the bank not honouring your payment.
  3. When your credit agreement includes a requirement that interest must be paid on the amount owed. Check to see if your original credit agreement requires you to pay interest on the balance you owe. If it does, the interest rate will be based on the amount that you owe at the interest rate specified in your credit agreement. It’s important to know that the interest you owe can continue to accrue, even if your account has gone into collections.

We hope this information was helpful!


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