The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us) STATE OF MICHIGAN FRANK J. KELLEY, ATTORNEY GENERAL Opinion No. 6716 March 31, 1992 RETAIL INSTALLMENT SALES ACT: Delinquency charge not part of time price differential A retail seller, pursuant to a retail charge agreement under the Retail Installment Sales Act, may charge a retail buyer a delinquency charge in addition to the maximum time price differential allowed by law. Honorable Lewis N. Dodak State Representative The Capitol Lansing, MI You have asked whether a retail seller, pursuant to a retail charge agreement under the Retail Installment Sales Act, may charge a retail buyer a delinquency charge in addition to the maximum time price differential allowed by law. Time price differential is another term for interest, Grigg v Robinson Furniture Co, 78 MichApp 712, 724; 260 NW2d 898 (1977). In order to determine whether a delinquency charge constitutes part of the interest rate, it is necessary to review the Retail Installment Sales Act, 1966 PA 224, MCL 445.851 et seq; MSA 19.416(101) et seq. The Retail Installment Sales Act, supra, sections 2(h) and 2(i), define the applicable terms: "Retail charge agreement" means an instrument prescribing the terms of retail installment transactions whether secured or unsecured which may be made under the instrument from time to time and under the terms of which a time price differential is to be computed in relation to the buyer's unpaid balance from time to time. "Time price differential" means the amount which is paid or payable for the privilege of purchasing goods or services to be paid for by the buyer in installments over a period of time. Time price differential does not include the amount, if any, charged for insurance premiums, delinquency charges, attorney fees, court costs, or official fees, but does include all other charges. [ Emphasis added.] Thus, the issue of delinquency charges in retail charge agreements is governed by application of this statutory exemption which expressly excludes these charges from the calculation of the time price differential or interest. (1) I would note that prior court opinions and those of this office, interpreting statutes governing other types of installment sales, have likewise distinguished delinquency and late payment charges from finance charges. These opinions have concluded that unlike finance charges, late payments, and expenses attended thereto, are not normally anticipated and, therefore, not usurious if reasonably related to the expense of the inconvenience incurred. See, e.g., OAG, 1985-1986, No 6338, p 217 (January 23, 1986), and OAG, 1981-1982, No 5904, p 199 (May 15, 1981), concluding that reasonable late payment charges under a land contract are not subject to statutory interest limits. In Barbour v Handlos Real Estate & Bldg Corp, 152 MichApp 174, 188; 393 NW2d 581 (1986), lv den 428 Mich 865 (1987), the court held that a $15 fee for late payment of a mortgage was not usury, citing OAG, 1981-1982, No 5904, supra, as authority. In another mortgage case, Eriksen v Fisher, 166 MichApp 439, 448; 421 NW2d 193 lv den 431 Mich 884 (1988), the court held that a provision which raised the interest rate 2% upon default was not a finance charge, but a late charge which was permissible under the federal Truth in Lending Act, 15 USC 1601 et seq, and Regulation Z, 12 CFR 226.4(c)(2), which provides: The following charges are not finance charges: (2) Charges for actual unanticipated late payment, for exceeding a credit limit, or for delinquency, default, or a similar occurrence. In Eriksen, id. at 449, the court noted: The additional two percent goes into effect only if payments are late, and late payments are not normally anticipated. Thus, consistent with the opinions of the Attorney General, we believe that the twelve percent interest rate provision upon default is a late charge, not part of the finance charge, and not proscribed by subsection (6). The exclusion of delinquency charges from the definition of "time price differential" in the Retail Installment Sales Act, supra, is similar to the exemption set forth in Regulation Z under the Truth in Lending Act, supra, which permits delinquency charges upon default. It is my opinion, therefore, that a retail seller, pursuant to a retail charge agreement under the Retail Installment Sales Act, may charge a retail buyer a delinquency charge in addition to the maximum time price differential allowed by law, provided that the delinquency charge is imposed for actual unanticipated delinquency, is reasonably related to the expense of the inconvenience incurred, so as not to constitute a penalty, and is fully disclosed to the parties. Frank J. Kelley Attorney General (1 Section 9 of the Retail Installment Sales Act, supra, authorizes a delinquency charge in retail installment contracts)