- Interest Rates: How to Impose Rates Higher than the Statutory Rate
- March 26, 2013 | Author: David Brown
- Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Cleveland Office
As counsel for commercial creditors of all kinds, I often see invoices that read, “1.5% finance charge per month after 30 days.” This translates to a high, but rather common interest rate of 18% per annum. Unfortunately, unless the interest rate was set forth and agreed to in an underlying written contract, or unless the invoice requires a signature and therefore constitutes a modification or a new contract, it will not be enforceable in Ohio courts if challenged.
The Ohio Supreme Court made clear in Minster Farmers Coop. Exch. Co. v. Meyer, (2008) 117 Ohio St.3d 459, that businesses may not impose interest rates of their choice on unpaid invoices by merely stating an interest rate on the invoices themselves. Instead, the applicable interest rate will be the statutory rate set forth under R.C. § 5703.47, unless the creditor can point to a written contract that provides a higher rate of interest.
Specifically, the Court cited R.C. § 1343.03(A) which states:
In cases other than those provided for in sections 1343.01 and 1343.02 of the Revised Code, when money becomes due and payable upon any bond, bill, note, or other instrument of writing, upon any book account, upon any settlement between parties, upon all verbal contracts entered into, and upon all judgments, decrees, and orders of any judicial tribunal for the payment of money arising out of tortious conduct or a contract or other transaction, the creditor is entitled to interest at the rate per annum determined pursuant to section 5703.47 of the Revised Code, unless a written contract provides a different rate of interest in relation to the money that becomes due and payable, in which case the creditor is entitled to interest at the rate provided in that contract.
The Court explained that R.C. § 5703.47 defines the term “federal short-term rate” and sets forth the manner in which the tax commissioner must determine the applicable rate on an annual basis. The federal short-term rate for 2013 is 3%.
In Minster Farmers Coop. Exch. Co. v. Meyer, the plaintiff argued that R.C. § 1302.10, not R.C. § 1343.03(A), controlled. This is significant, because R.C. § 1302.10, which codifies a portion of the Uniform Commercial Code, provides that a written confirmation of an agreement between merchants sent within a reasonable time operates as an acceptance even though it states additional or different terms. In other words, the plaintiff argued that the finance charges set forth on delivery slips and invoices constituted additional terms that the defendant accepted -- through failure to object to them within a reasonable time -- and became terms of the contract between the parties.
The Supreme Court was not persuaded and held otherwise by reasoning that, “[w]hen statutes conflict, the more specific provision controls over the more general provision. R.C. § 1302.10 addresses generally how provisions may be added to a contract. R.C. § 1343.03(A) specifically establishes how parties can agree to an interest rate higher than the maximum allowed under R.C. § 5703.47. R.C. § 1343.03(A) requires a written contract, not simply an additional term added to an invoice and met without resistance by another party, to establish an interest rate greater than that set forth in R.C. § 5703.47. Thus, R.C. 1343.03(A) is the statute that [the plaintiff] must satisfy. That is, it could not collect from [the defendant] the interest rate it claims is due unless that rate had been set forth in a ‘written contract.’”
The Court went on to state that, “in order for a written contract to exist for purposes of R.C. 1343.03(A), there must be a writing to which both parties have assented. An invoice or monthly statement does not constitute such a writing." It is important to keep in mind that this article focuses on invoices, delivery slips, account statements, etc. that do not require a signature by the debtor. If the invoice is signed by the debtor, it’s entirely possible that it will be viewed as a modification of the original contract, or a new contract and that the interest rate contained therein will be enforceable in Ohio courts.
In summary, if you would like to charge an interest rate higher than the statutory rate provided by R.C. §§ 1343.03(A) and 5703.47, you must provide a written contract, application or purchase order signed by the debtor that lays out the interest rate to be charged. Otherwise, interest rates set forth on invoices, account statements and other documents will not be enforceable if challenged by the debtor or the court.
A table of interest rates certified by the Ohio Tax Commissioner can be found at http://www.tax.ohio.gov/ohio&under;individual/individual/interest&under;rates.aspx.
Minster Farmers Coop. Exch. Co. v. Meyer, (2008) 117 Ohio St.3d 459 (citing WC Milling, LLC v. Grooms, 164 Ohio App.3d 45, 52, 2005 Ohio 5420, 841 N.E.2d 324; Yager Materials, Inc. v. Marietta Indus. Ents., Inc. (1996), 116 Ohio App.3d 233, 235-236, 687 N.E.2d 505; Hobart Bros. Co. v. Welding Supply Service, Inc. (1985), 21 Ohio App. 3d 142, 144, 21 Ohio B. 152, 486 N.E.2d 1229; Olander & Brophy v. Northeastern Pools (Jan. 7, 1991), Stark App. No. CA-8219, 1991 Ohio App. LEXIS 271, 1991 WL 6268; Kut Kwick Corp. v. N. Dixie Parts & Servs., Inc. (Apr. 21, 1988), Montgomery App. No. CA10678, 1988 Ohio App. LEXIS 1443, 1988 WL 38130; Bunnell Elec., Inc. v. Ameriwash (May 23, 2005), Warren App. No. CA2004-01-009, 2005 Ohio 2502, 2005 WL 1201563; Yuhanick v. Cooper (March 24, 2001), Columbiana App. No. 99 CO 37, 2001 Ohio 3202, 2001 WL 274545.