Interest Charges and Unlawful Trade Practices

How many people does it take to properly calculate 9% interest on $100 past due balance?  How many are involved?!

The age-old question about interest charges is one our company deals with everyday in attempting to follow the law.  There are a number of things that can complicate the matter, most of them involving computers! (Of course, we always knew they would take over the world in a bad way some day!)

I know some of our clients don’t understand the financial gymnastics we go through when we remit or enter their account balances, but it is all in the “interest” of following the law – the Oregon Unlawful Trade Practices Act (UTPA), or ORS 646.605 and following.  You see, if our client has an agreement to charge interest or finance charges, and they are asking us to collect those sums, we have to keep those charges separate from the principle balance so we do not “compound” the fees, or charge interest on interest.  Our clients’ software program separates the two amounts, then combines it in the amount written off to collection as one balance.  We then have to break it back into two parts, thereby confusing the matter when we collect the principle and finance charges separately.  And it usually amounts to only a few dollars, so it doesn’t seem like it should be that difficult, right?

The UTPA lists numerous potential violations, among them are “deceptive practices” whereby a business uses “false or misleading” conduct toward a consumer.  And many lawyers would look at compounding interest as a violation.  Additionally, the Oregon Attorney General has regulatory authority over the UTPA, so not only does a violator face a civil lawsuit with class-action potential, but criminal charges are a real possibility!  Fines up to $25,000 plus damages etc. etc. So the few dollars a business compounds in interest charges, multiplied by tens of thousands of consumers, over a year or two…well that is worth fixing before you have a problem!

We would like to apologize in advance for being highly sensitive about finance and interest charges and keeping them in their respective “buckets” in our software system, but it is what we are supposed to do to treat consumers fairly, and also to lessen potential legal claims against us and our clients.  So, it really does take everyone involved to correctly calculate interest charges!

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