Permitted default charges
Default charges are charges that are imposed on a borrower by a lender when the borrower does not make payment when due or does not comply with any other obligation under the credit agreement. A lender cannot charge a consumer default charges under a credit agreement other than interest and:
- reasonable legal fees in connection with enforcement of the agreement;
- reasonable costs in connection with realizing or protecting the lender’s security interest under the agreement; and
- reasonable charges in connection with dishonoured payments e.g. a payment returned due to insufficient funds in the borrower’s account.
Default interest charges are allowed provided that the charges do not constitute a penalty. Penalties are not enforceable. Default interest may be at a higher interest rate, except when the debt is secured by a mortgage of real property.