What is the name for this creditors' practice?
March 5, 2014 2:41 PM Subscribe
Is there a commonly used term for the practice of a creditor (particularly a landlord) applying a payment to several separate outstanding balances in such a way as to create artificial shortfalls in the balances and thus allow the charging of additional late fees?
posted by enn to Law & Government (9 answers total) 1 user marked this as a favorite
Let's say my rent is $100 with a $10 late fee.
I pay January's rent late. I pay February's rent on time, but I have not paid the $10 late fee I incurred for February.
Instead of applying my $100 check to February's rent, the landlord applies $10 to the January late fee and $90 to February's rent. Now he can claim that February's rent was not paid in full in time, and so charge me a new $10 late fee, for a total outstanding balance of $20 ($10 for the "shortfall" in February's rent payment and the $10 late fee for February).
I know that some states prohibit or regulate this practice, and I have a vague memory that at least one of the financial reform bills which were introduced in Congress after the credit crunch also had some provision about payments being applied in the way most advantageous to the debtor (I don't recall whether this was for creditors in general, landlords specifically, or some other specific class of creditor).
I'd like to know what this practice is called so I can research its legality in my jurisdiction. (If you have specific sources that talk about its legality the context of a Chicago lease subject to the RLTO, that would be useful too.)