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Late Payment Compensation: Understanding the Legal Process

Late Payment Compensation: Understanding Your Rights and Options

Late payment is a common issue that lenders face, and it can be frustrating when borrowers fail to pay on time. However, in Costa Rica, there is a legal process for compensating the lender when a debtor defaults. This article will discuss the legal statement, interest on arrears calculation, administrative charges, reasons for late payment, compensation, and how to incentivize borrowers to pay on time.

The Legal Statement on Late Payment Compensation in Costa Rica

According to the Attorney General in Costa Rica, interest on arrears is the legal method for compensating the lender when a debtor fails to pay on time. This compensation can lead to penalties for the unreasonable delay of the debt. The law establishes the proportion of compensation and can vary.

Article 498 of the Code of Commerce in Costa Rica states that late interest shall equal the current interest unless otherwise agreed upon. When current and late interests are agreed upon, the latter cannot be higher than 30% of the rate agreed for current interest. This is a mandatory rule, and the parties cannot waive it. The National Registry, for example, will reject the mortgage registration if the late interest exceeds the 30% rule. Therefore, if parties agree to a 12% current interest, the maximum interest on arrears should be 15.60 (12+3.6).

Interest in Arrears Calculation

Interest on arrears is calculated differently from the current interest. It is calculated on how much the payer should have paid on a certain date, not the debt’s outstanding balance. This calculation confuses people because they consider that when there is a delay, the interest on arrears replaces the current interest until they pay off the debt. Independent interest calculation includes current interest on the amount of the loan and interest on arrears on the amount of the installment in arrears.

Administrative Charge

Commercial banks in Costa Rica typically include a “penalty” in case of late payment. However, they usually charge a fixed fee only once, called an “administrative charge.” This charge is a way to cover the administrative costs that the bank incurs when a debtor defaults.

Reasons for Late Payment

Late payment can occur for various reasons, and it is essential to understand them to determine the best approach to dealing with the issue. One of the common reasons for late payment is health-related problems. Debtors may fall sick and cannot make timely payments, but they usually recover later.

Another reason for late payment is seasonality. For example, if a borrower is in a business affected by the seasons, they may experience slow business during the off-season and may not have enough funds to pay on time. They may then go on vacation during the busy time of the year. Statements such as “I am out of the country and cannot wire from here” and “I was at the beach with my family” are common excuses.

Incentivizing Borrowers to Pay on Time

Late fees are a common way of incentivizing borrowers to pay on time. Adding late fees to the principal amount at the end of the term allows the borrower to continue with their repayment strategy. As long as they make their monthly payments, the fees can accrue to the end of the term, giving the lender a bigger payout.

Late fees incentivize the borrower to pay on time, which gives the lender peace of mind. They can also enhance the return if the borrower makes monthly payments but is not always on time. Therefore, it is essential to set reasonable late fees that encourage borrowers to pay on time.

Conclusion

late payment compensation in Costa Rica is regulated by law, and lenders have the right to demand full payment, pursue a foreclosure proceeding, and collect interest on the balance owed when a borrower defaults. The interest on arrears is calculated differently from the current interest and can lead to penalties and compensation for the unreasonable delay of the debt. Understanding the rules and regulations regarding late payment compensation is crucial to ensure you receive the appropriate compensation for the delay. By imposing late fees, lenders can incentivize borrowers to pay on time and enhance their return, but it’s essential to balance this with empathy and understanding of the borrower’s circumstances. Overall, it’s important to strike a fair and reasonable balance between protecting lenders’ interests and being considerate towards borrowers struggling to make their payments on time.

-Written by Glenn Tellier (Founder of Grupo Gap)

[email protected]

 

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    Frequently Asked Questions

    What is late payment compensation in Costa Rica?

    Late payment compensation is the legal method for compensating the lender when a debtor fails to pay on time. It is also known as “interest on arrears” in Costa Rica.

    How is the interest on arrears calculated in Costa Rica?

    Interest on arrears is calculated differently from the current interest. It’s how much the payer should have paid on a certain date, not the debt’s outstanding balance. Current interests are calculated on the loan amount, while interest on arrears is calculated on the amount of the installment in arrears.

    Can lenders charge any interest rate for late payment compensation in Costa Rica?

    No, lenders cannot charge any interest rate they like for late payment compensation in Costa Rica. The maximum interest on arrears should be 30% of the rate agreed for current interest.

    What happens if the late interest exceeds the 30% rule in Costa Rica?

    The National Registry will reject the mortgage registration if the late interest exceeds the 30% rule in Costa Rica. This is a mandatory rule, and the parties cannot waive it.

    Can lenders waive the interest on arrears in Costa Rica?

    No, lenders cannot waive the interest on arrears in Costa Rica. The parties cannot waive the mandatory rule of Article 498 of the Code of Commerce.

    Can lenders charge administrative charges for late payments in Costa Rica?

    Yes, commercial banks can charge a fixed fee only once for late payment, referred to as an “administrative charge.” This is separate from the interest on arrears.

    What are some common reasons for late payments in Costa Rica?

    Some common reasons for late payment in Costa Rica include health issues, seasonal fluctuations in business, and being out of the country or on vacation.

    Can late fees incentivize borrowers to pay on time in Costa Rica?

    Yes, late fees can incentivize borrowers to pay on time in Costa Rica, which gives lenders peace of mind. However, balancing this with empathy and understanding the borrower’s circumstances is important.

     

     

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    Article by Glenn Tellier (Founder of CRIE and Grupo Gap)

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