7.1. SR 12-15-2008 - Laserfiche WebLink

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From: Beck, Peter K. Sent: Tuesday, November 25, 2008 1:16 PM To: Allard, Tina Cc: Simon, Tim; Johnson, Lori Subject: FW: City of Elk River/Assessment of 18% Finance Charges Tina, Charlie and I asked Gene Hennig, from our financial institutions practice group, for some input on the finance charges question. Here is his response. Looks like you are good to go, as long as the charge is clearly identified as a "finance charge" and not "interest". Let me know if you have any questions. Peter Peter K. Beck From: Hennig, Gene H. Sent: Monday, November 24, 2008 10:54 AM To: Wilson, Charles D. Cc: Hennig, Gene H. Subject: City of Elk River/Assessment of 18% Finance Charges Charlie: I write in response to your request from last Friday regarding the legality of the City of Elk River unilaterally charging a finance charge of 18% on unpaid obligations owed to the City. Although the law of interest and usury is never "crystal clear" when dealing with questions of this nature, it is my conclusion that in all probability the City could assess an 18% finance charge under exisitng Minnesota law. Two questions are really present in this situation. First, there is the question of whether the City can assess these finance charges unilaterally on its invoices without obtaining the written consent of those persons or entities obligated to pay the outstanding accounts. Second, there is the question of whether a finance charge of 18% is usurious under Minnesota law. 1. It is a general well-known proposition that contractual obligations need to be in writing to be enforceable. So, too, Minn. St. 334.01, subd. 1 requires loan obligations that bear interest at a rate in excess of 6% per annum to be in writing. However, there is also recognized in Minnesota a legal theory known as the "doctrine of accounts stated", which is derived from the Second Restatement of Contracts, section 282(1) (1981). What this doctrine essentially provides is that if a creditor presents an invoice for an amount owed and the account debtor does not timely object it is assumed that the debtor has consented to the charge. Here in Minnesota, this doctrine has been used in instances where a creditor has assessed interest unilaterally in excess of 6% on an account and the debtor has not objected. See, American Druggists Ins. v. Thompson Lumber, 349 N.W.2d 569 (Minn. App. 1984). I would conclude, therefore, that the fact that the City of Elk River is not getting the consent of its account debtors before assessing its finance charge should not be a problem unless there is timely objection from these debtors.