Penalty interest B2C contract.

[Louis Balfour]

We’ve withheld a sum for services not rendered by a provider. They are threatening to charge 1.5% per month interest.

IIRC there is a limit to the interest rate chargeable both to business and consumer customers and b2b. Can anyone please point me to the legislation relating to b2c please?

[Al Gorithum]

My understanding is that B2B law is very different to B2C as the former are viewed as being more sophisticated and hence more able to fend for themselves. The answer should be in the contract terms. What does it say?

[Louis Balfour]

That’s the point, it says 1.5% per month. That doesn’t mean it is enforceable however.

[Al Gorithum]

Louis Balfour said:

That’s the point, it says 1.5% per month. That doesn’t mean it is enforceable however.

If it's in the contract it should be enforceable IMHO. Perhaps you have a counter-claim against them for non-performance etc?

[Amateurish]

I don't recall that there is any specific limit on the interest rate charged on late payments. I imagine that an excessive interest rate would be deemed an unfair term in a consumer contract.

Obviously if a payment wasn't due because of a failure in performance, then no interest could be levied anyway.

[K4sper]

If they want to sue for that additional interest, the onus will be on them to prove it was reasonable. Generally, they will have to show that it is a genuine pre-estimation of their loss and not just a incentive for you to pay (and certainly not a penalty for your failing to pay). They may be able to justify this by pointing to their own funding costs as evidence of what your failure to pay is costing them. However, supreme court has found that an additional rate of 2% is generally reasonable.

This is all so heavily fact-dependent however, you may not have any right at all to withhold payment. I would also expect that the contract would say that you only pay additional interest where there is no a bona fide dispute over whether that payment is in fact due.

How much is the disputed sum? that should guide you over how much it is worth fighting over. 1.5% of 10,000 might be worth a row (especially if compounding), 1.5% of 1k is a bit more of a cripple fight...

[deggles]

Late Payment of Commercial Debts is probably relevant https://www.legislation.gov.uk/ukpga/1998/20/conte...
Statutory interest is 8% above base rate (annual) so they might struggle to justify 1.5%/month.

[Amateurish]

deggles said:

Late Payment of Commercial Debts is probably relevant https://www.legislation.gov.uk/ukpga/1998/20/conte...
Statutory interest is 8% above base rate (annual) so they might struggle to justify 1.5%/month.

That's only relevant where no interest rate is stated in the contract.

[Louis Balfour]

K4sper said:

If they want to sue for that additional interest, the onus will be on them to prove it was reasonable. Generally, they will have to show that it is a genuine pre-estimation of their loss and not just a incentive for you to pay (and certainly not a penalty for your failing to pay). They may be able to justify this by pointing to their own funding costs as evidence of what your failure to pay is costing them. However, supreme court has found that an additional rate of 2% is generally reasonable.

This is all so heavily fact-dependent however, you may not have any right at all to withhold payment. I would also expect that the contract would say that you only pay additional interest where there is no a bona fide dispute over whether that payment is in fact due.

How much is the disputed sum? that should guide you over how much it is worth fighting over. 1.5% of 10,000 might be worth a row (especially if compounding), 1.5% of 1k is a bit more of a cripple fight...

We've only withheld £1400. You say "additional rate of 2% is generally reasonable" is that a per annum figure and do you have a source for that.

I had to look up "cripple fight"

[Mrr T]

Amateurish said:

deggles said:

Late Payment of Commercial Debts is probably relevant https://www.legislation.gov.uk/ukpga/1998/20/conte...
Statutory interest is 8% above base rate (annual) so they might struggle to justify 1.5%/month.

That's only relevant where no interest rate is stated in the contract.

Any rate in the contract must be a genuine estimate of loss. Penalty interest is not enforceable.

I would suggest 18% in very high so likely to be unenforceable unless the other party is financed on a credit card.

[BertBert]

What does the contract say about disputes and payments?