STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 5809

November 3, 1980

RETAIL INSTALLMENT SALES:

Time-price differential charged by professional corporation or professional person for services rendered

USURY:

Maximum interest rates charged by professional corporation or professional person for services rendered

A professional corporation or a professional person, such as a dentist, may enter into an agreement for the payment of interest to compensate for delayed payment of a bill for professional services rendered, but the maximum rate of interest charged may not exceed 5 percent per annum unless the parties agree in writing to an interest rate not in excess of 7 percent per annum.

A professional corporation or a professional person, such as a dentist, as an alternative to charging interest, may offer to the patient a cash price or a higher time-price differential arrangement for professional services to be rendered.

Honorable Gary M. Owen

State Representative

State Capitol

Lansing, Michigan 48902

You have requested my opinion on three questions concerning the imposition of finance charges by a professional corporation or a professional person, such as a dentist, for providing the dental services of a licensed professional person.

You first ask if interest may be charged on bills for professional services and, if so, is the rate of interest limited by 1966 PA 326; MCLA 438.31 et seq; MSA 19.15(1) et seq, Sec. 1.

Interest has been defined in Michigan as ". . . the compensation allowed by law, or fixed by the parties, for the use or forbearance of money, . . .." Marion v City of Detroit, 284 Mich 476, 484; 280 NW 26, 29 (1938). It has also been held that interest is ". . . given for the delay in the payment of money, . . .." Balch v Detroit Trust Co; 312 Mich 146, 152; 20 NW2d 138, 141 (1945).

Interest in Michigan is purely statutory, Kermott v Ayer, 11 Mich 181; 7 Cooley 181 (1863). The Legislature has enacted a general civil usury statute, 1966 PA 326, as amended, supra, to regulate the amount of interest charged on debts where that rate of interest is not regulated by another law. Thus, 1966 PA 326, Sec. 1, supra, provides, in pertinent part:

That statute applies equally to interest charged on a loan of money or interest charged on a debt arising from the sale of goods or services:

Thus, absent some other law limiting or increasing the permissible interest charges as set forth in 1966 PA 326, supra, a seller and purchaser of goods or services may agree that the debt resulting from that sale shall bear interest not to exceed 5 percent per annum unless the agreement is in writing in which case the interest shall not exceed 7 percent per annum. ⁽¹⁾

All persons regardless of their occupation may contract for the payment of interest on debts unless explicitly prohibited by law from doing so. In Nebbia v New York, 291 US 502, 523; 54 S Ct 505, 510; 78 L Ed 940, 948-949 (1934), the United States Supreme Court held:

It is, therefore, my opinion that a professional corporation or a professional person, such as a dentist, may enter into an agreement with the client or patient for the payment of interest on overdue bills for services such as dental services and the maximum rate of interest which may be charged is 5 percent per annum unless otherwise agreed to in writing, in which event the maximum rate may not exceed 7 percent per annum.

Your last question asks whether a professional corporation or person may charge a time-price differential in excess of the amount of interest which may be charged pursuant to 1966 PA 326, Sec. 1, supra.

A 'time-price differential' is the difference between the cash price and the credit price offered for the sale of property or services. As the Court noted in Keefe v Bush & Lane Piano Co, 247 Mich 82, 86; 225 NW 585, 586 (1929):

The Michigan case law with respect to time-price differentials was summarized in Manufacturer's National Bank of Detroit v Burlison, 69 Mich App 570; 245 NW2d 350 (1976), lv app den, 399 Mich 813 (1977), as follows:

1966 PA 326, Sec. 1, supra, also recognized that time-price differentials may be charged on the sale of services as well as goods:

Thus, if a buyer is offered a choice between paying a cash price or paying a higher credit price for services to be performed, the difference between the two prices will be treated as a time-price differential which is not subject to the interest rate limits of 1966 PA 326, Sec. 1, supra.

However, the amount allowable as a time-price differential is not without limit. The Retail Installment Sales Act, 1966 PA 224; MCLA 445.851 et seq; MSA 19.416(101) et seq, was enacted to regulate retail installment sales transactions. It requires the making of certain disclosures and imposes limits on the charges which may be made in connection with such sales. Thus a 'retail installment transaction' as defined in 1966 PA 224, supra, Sec. 2(f), pursuant to a 'retail installment contract' as defined in 1966 PA 224, supra, Sec. 2(g), is limited to the time-price differential set forth in 1966 PA 224, supra, Sec. 7(a)(1), which provides as follows:

Such a 'retail installment transaction' which is made pursuant to a 'retail charge agreement' as defined in 1966 PA 224, supra, Sec. 2(h), is further limited to the time-price differential set forth in 1966 PA 224, supra, Sec. 12(c), which provides, in pertinent part, as follows:

However, not all retail sales fall within the coverage of the Retail Installment Sales Act, supra. In order to qualify as a retail sales transaction within the meaning of the Retail Installment Sales Act, supra, the seller must fall within the definition of 'seller' set forth in 1966 PA 224, supra, Sec. 2(e), as follows:

Since the definition of 'seller' excludes a contract for the sale of the services of an attorney, dentist or a doctor of medicine or osteopathy, such contract does not fall within the Retail Installment Sales Act, supra. This, however, does not mean that the excluded professional corporation or person may not enter into a contract for professional services which provides for a time-price differential.

In Silver v International Paper Co, 35 Mich App 469, 471; 192 NW2d 535, 536, lv app den, 386 Mich 764, (1971), the Michigan Court of Appeals considered whether a time-price differential may be charged on the sale of real estate. The Court noted that the language quoted above from 1966 PA 326, supra, excludes therefrom '. . . any time-price differential which may be charged upon sales of goods or services on credit. . . .' The Court pointed out that the exemption for time-price differentials in the usury statute was enacted into law on the same date as the Retail Installment Sales Act, supra. The Court further noted that the authority to charge time-price differentials springs from the common law and that statutes will not be extended by implication to abrogate the established rules of common law. Accordingly, even though the transaction fell outside both the Retail Installment Sales Act, supra, and the exemption to 1966 PA 326, supra, the Court held that it qualified as a common law time-price differential exempt from 1966 PA 326, supra. ⁽²⁾ Thus, a professional corporation or professional person, such as a dentist, may charge a common law time-price differential.

Therefore, the enumerated professional corporation or professional person which is excluded from the provisions of the Retail Installment Sales Act, supra, may charge a time-price differential for their services in excess of the limitations of 1966 PA 224, supra, and 1966 PA 326, supra. It is parenthetically noted that the Legislature may wish to consider limitations upon time-price differential payments in this area.

In summary, it is my opinion that a professional corporation or a professional person, such as a dentist, may enter into an agreement for the payment of interest to compensate for delayed payment of a bill for professional services rendered. The rate of interest charged may not exceed 5 percent per annum unless the parties agreed in writing to an interest rate not in excess of 7 percent per annum. It is further my opinion that a professional corporation or professional person, such as a dentist, as an alternative to charging interest, may offer to the patient a cash price or a higher time-price differential arrangement for professional services to be rendered.

Frank J. Kelley

Attorney General