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#111375 - 09/02/03 03:20 PM Maximum late fees

I am the internal auditor at our (Ohio) bank and am currently reviewing lending operations. I am seeking to determine if there are any regulations or statutes that limit or prescribe amounts that can be charged borrowers as late fees for delinquent loan payments

#111376 - 09/15/03 02:38 PM Re: Maximum late fees

This section of the Ohio Revised Code authorizes late fees by agreement of the parties without any specific limit. My company's legal counsel advised that the amount must be reasonable.

1109.20 Allowable interest rate, fees and charges; governing law.

(A) A bank may contract for and receive interest or finance charges at any rate or rates agreed upon or consented to by the parties to the loan contract, extension of credit, or revolving credit agreement, but not exceeding an annual percentage rate of twenty-five per cent. In addition, a bank may charge, collect, and receive, as interest, other fees and charges that are agreed upon by the bank and the borrower, including, but not limited to, periodic membership fees, cash advance fees, charges for exceeding a designated credit limit, charges for late payments, charges for the return of a dishonored check or other payment instrument, guarantee fees, origination fees, processing fees, application fees, and prepayment fees. Any fees and charges charged, collected, or received by a bank in accordance with this division shall not be included in the computation of the annual percentage rate or the rates of interest or finance charges for purposes of applying the twenty-five per cent limitation.

The computation of the loan balance on which interest and finance charges are assessed and the method of compounding interest on the balance shall be as agreed upon by the bank and the borrower.

(B) For the purposes of section 85 of the "National Bank Act," 48 Stat. 191 (1933), 12 U.S.C.A. 85, and section 521 of the "Depository Institutions Deregulation and Monetary Control Act of 1980," 94 Stat. 132, 12 U.S.C.A. 1831d, both of the following apply:

(1) All the interest and finance charges and other fees and charges authorized under division (A) of this section are deemed to be interest and may be charged, collected, and received as interest by a bank.

(2) All terms, conditions, and other provisions authorized by this section and other provisions contained in any agreement with the borrower, including, but not limited to, terms, conditions, and other provisions relating to the method of determining the balance upon which interest or finance charges are applied, time periods within which fees and charges may be avoided, reasons for default and rights to cure any default, rights to accelerate payments, account cancellation, choice of law, and change-in-terms requirements, are deemed to be material to the determination of the interest rate.

(C) Any agreement between a bank and a borrower, wherever the borrower's place of residence, shall be governed solely by the laws of this state and federal law, unless otherwise provided for in the agreement.

(D) Subject to any requirements under applicable federal law, a bank and a borrower may specify in their agreement any terms and conditions for modifying or amending the agreement.

(E) Except as provided in section 1343.011 [1343.01.1] of the Revised Code, the charging, collection, or receipt of the interest and finance charges, and other fees and charges authorized under this section are deemed not to violate any provision of the Revised Code that prescribes, regulates, or limits any fee, charge, rate of interest, or finance charges.

#111377 - 09/29/03 11:18 AM Re: Maximum late fees
Bill S Offline
Junior Member

Registered: 02/12/03
Posts: 35
Loc: OH
To (hopefully) add something to this discussion...

Nearly 20 years ago, while I was working at a national bank in Marietta, OH, our bank obtained a legal opinion from our counsel on the issue of maximum permissible late fees in Ohio.

Our counsel cited the general section the previous reponse did about a "reasonable" late charge, etc. He also pointed us to the Retail Installment Sales Act section in the ORC (the citation escapes me at the moment). In that section, the maximum late charge at the time for three-party indirect loans (dealer as original creditor) was 5% of the late payment up to a maximum of $3. He advised us to consider using the 5% standard as our measure of what is "reasonable" (since that is already specifically spelled out in the ORC for one type of consumer lending), but that we could ignore the $3 cap.

Just my 2 cents' worth.
The information conveyed is my opinion or recollection and has no connection with my employer.
William J. Showalter, CRCM, CRP

Opinions expressed are mine only & are not legal advice.

#111378 - 01/15/04 05:44 PM Re: Maximum late fees

We had the same situation several months ago. We took a survey(anonymously) of the other banks in our area to see what they were charging. We then set our fee, not the lowest nor the highest, just somewhere in between... just being fair. Hope this helps.


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