7.1. SR 12-15-2008 - Laserfiche WebLink

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2. As mentioned above, the general rule in Minnesota is that interest of more than 6% may not be charged, unless the loan is in writing, in which case the rate can go up to 8%. See, Minn. St. 334.01, subd. 1. For this statute to apply, however, there must in fact be a "loan or forbearance of debt." In cases similar to your situation, courts have held that the assessment of a finance charge is not the same thing as a loan or forbearance of debt. See, Widmark v. Northrup King Co., 530 N.W.2d 588 (Minn. App. 1995). A finance charge is more in the nature of a penalty for paying an invoice late; it is not being assessed with the intent that there be a loan of money. Instead, in the case of a finance charge the creditor is trying to get paid at the earliest opportunity and is assessing the finance charge in the hope that that will occur without additional delay. The finance charge can also be justified as offsetting the additional expense that a creditor often incurs in having to deal with late payments. The key to staying within the boundaries of the law on this issue is to make sure that the City plainly states that it is charging a "finance charge" and not "interest" and that it does not otherwise seek to evade the usury laws by assessing interest on its accounts as opposed to simply trying to get its accounts paid as soon as possible after they become due. I would finally point out, for what it is worth, that many businesses provide unilaterally for the assessment of finance charges at the rate of 1.5% per month on outstanding past due accounts. What the City of Elk River is therefore seeking to do is well within accepted practice, as I have come to know it, here in Minnesota. If either you or the City would like to discuss this further with me, please feel free to do so at any time. Regards-- Gene.