Involuntary credit arises when the debtor fails to pay at maturity (breach). From the creditor’s perspective, this credit is involuntary. The debtor effectively obtains it by failing to pay. In such cases, the creditor may claim interest from the debtor under the Norwegian Late Payment Interest Act.
When can the creditor claim default interest?
The creditor may claim default interest from the due date of the monetary claim. This follows from Section 2 of the Late Payment Interest Act.
When the due date has not been pre-determined, the claim becomes due upon demand. In such cases, default interest may be charged 30 days after the creditor has sent the debtor a written demand for payment. The reason for this 30-day period—and thus the debtor’s “free credit” during this time—is that the debtor must be given a reasonable opportunity to verify the basis of the claim and receive adequate advance notice to perform.
Few exceptions to the obligation to pay default interest
If the conditions for default interest are met, the creditor has an unconditional and objective right to it. Any obstacle that would otherwise fall under the principle of control liability (which could exempt liability for non-performance or damages) does not exempt the obligation to pay default interest.
There is, however, an exception for so-called "kreditormora", i.e. when the creditor’s own conduct is the reason why the monetary claim is not fulfilled.
Can the Late Payment Interest Act be derogated from?
According to Section 1 of the Late Payment Interest Act, the Act is generally non-mandatory, meaning that different solutions may be agreed upon or follow from practice between the parties. However, there is an important exception: Sections 2 and 3 of the Act cannot be waived to the detriment of consumers. This follows from Section 4. The purpose is to protect consumers from unreasonably high default interest rates.
Why do rules on default interest exist?
Compensatory purpose: The creditor suffers loss of interest
When payment is delayed, the creditor suffers a loss of interest. It is reasonable that this loss is compensated. The actual loss may vary between different creditors. Individual assessments would create difficult evidentiary issues in calculating damages. The legislator has therefore chosen a simpler, more predictable and less conflict-prone system, whereby a statutory, standardized interest rate is paid as compensation for late payment of monetary claims.
Preventive purpose: Encouraging timely payment
Default interest is also intended to have a preventive effect and encourage debtors to settle monetary claims on time, creating an incentive for timely performance.
Compensation for credit risk in involuntary credit
When payment is delayed by the debtor, an involuntary credit arises for the creditor. In general, involuntary credit involves a higher credit risk and greater uncertainty regarding performance than ordinary credit arrangements. This increased risk to the creditor is considered to justify compensation.
