Late Charges

For closed end loans in which the principal amount of the loan does not exceed five thousand dollars interest not to exceed the maximum rate set by contract may be charged. (A.R.S. § 44-1205) Any lawful charge, fee, cost or expense paid by or due to a lender on behalf of a borrower, with his consent, may be added to the principal amount of a loan made to such borrower and such amount shall become part of the principal and interest may be charged thereon as provided by law. (A.R.S. § 44-1207)

Because post-default interest is imposed only upon default, thus being under the control of the borrower, it does not fall under the “usury” laws. Small v. Ellis, 90 Ariz. 194, 367 P.2d 234 (1961).

In any transaction, Late Charges (as a form of liquidated damages) must be reasonable under the circumstances or run the risk of being construed as being "penalties" and thus unenforceable. See Roscoe-Gill v. Newman, 188 Ariz. 483, 937 P.2d 673 (Ct. App. 1996); Pima Sav. & Loan Ass'n v. Rampello, 165 Ariz. 297, 812 P.2d 1115 (Ct. App. 1991).