Bill to target restrictions on late fees

Md. businesses seek to counteract ruling against cable TV firm

`A little bite' needed

Measure would allow any late fee under certain conditions

January 09, 2000|By Sean Somerville | Sean Somerville,SUN STAFF

Maryland businesses, concerned about a court decision ordering the return of $6.7 million in cable television late fees, are pushing for legislation that would lift late-fee restrictions imposed by the ruling.

The legislation would give businesses the right to impose any late fee, as long as both parties agree to it contractually, and the amount and circumstances requiring payment are disclosed, according to a draft of the bill.

If enacted by the General Assembly, the legislation would not reverse the July ruling by the Maryland Court of Appeals. That ruling upheld a Baltimore Circuit Court judge's decision ordering United Cable Television of Baltimore LP to return $4.50 for every $5 late penalty assessed between 1992 and 1997.

The legislation would, however, pre-empt a 0.5 percent monthly cap on fees that the appeals court said otherwise applies.

"One of the key things is, a lot of time people don't pay on time," said Miles Cole, vice president of government relations for the Maryland Chamber of Commerce. "Most businesses felt that there needs to be a little bite so there's an inducement."

The Maryland Chamber of Commerce, which lists the legislation as a top priority, said the court ruling and the legislation have the potential to affect leasing, medical services and real estate rental and other industries. The chamber is billing its effort as an attempt to "protect consumers who pay on time."

But Philip S. Friedman, a Washington lawyer who represents cable subscribers in class action suits in Baltimore and many other cities, said the legislation would allow cable and other businesses to gouge consumers with impunity.

"It's typical overreaching," he said. "There isn't a consumer group out there that doesn't recognize that people need to pay their bills on time. But you need to have a fee that has some relationship to the damage you cause by not paying your bill on time. This has become an incredibly lucrative revenue stream."

The lawsuit against United Cable -- formerly owned by Colorado-based Tele-Communications Inc. and now owned by AT&T Corp. -- was filed in 1995 by subscriber Louis Burch, who called the late fee unfair. It was made a class action in August 1996 on behalf of city subscribers who had been charged late fees -- about 35,000 to 40,000 customers a month, a third of all city cable customers.

In September 1997, Baltimore Circuit Judge Gary I. Strausberg ruled that the fees were "unlawful and inappropriate." He ruled that the late fee did not amount to "enforceable liquidated damages" because it overestimated the cost resulting from late payment. Ordering the return of $6.7 million in fees and about $900,000 in interest, he called the fee a way for the company "to swell its coffers of profitability at the expense of the public."

Joined by an assortment of organizations that filed friend of the court briefs, including the National Leasing Association, the National Multi-Housing Council, the Maryland Retailers Association and the Maryland Chamber of Commerce, United appealed the decision, saying $5 was a reasonable estimate of damage caused by each late payment.

The appeals court disagreed. In an opinion written for the court's majority, Judge Lawrence F. Rodowsky held that any charge that exceeds a half-percent a month is invalid unless it is authorized by statute. To calculate that amount, he noted a 6 percent limit included in the Maryland Constitution in 1851.

"The constitutionalized public policy remains that the legal rate of interest is six percent and that, if any changes in that rate are to be made, they are to be made by the General Assembly," Rodowsky wrote.

Paul Tiburzi, a lawyer for Piper Marbury Rudnick & Wolfe LLP who represents the chamber, said the legislation is a response invited by the decision. The chamber said 13 statutes authorize contracts to provide for late fees, for parties including secondary mortgage lenders and financial institutions.

"The legislative effort is critically important, because there are thousands of companies affected by the ruling other than the cable industry," he said.

Tiburzi wrote in a friend of the court brief that the decision may apply to commercial leases, professional services, leasing agreements, membership agreements, tuition payments, medical services and insurance policies.

The Court of Special Appeals has applied the decision to invalidate late fees charged by a veterinarian and equestrian services company, he said in the brief. "You're not talking about big companies here, these are little people," Tiburzi said in an interview.

According to the draft of the bill, dated Sept. 28, the legislation would say that late fees are not liquidated damages. Friedman said that would relieve late fees from having to reflect associated costs.

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