Money Collection Can Be a Major Drain for Security Companies

Legal Briefing guest columnist Jesse Kirschenbaum explains why money collections may bog security alarm companies down deeper.

Alarm companies are constantly dealing with subscribers who default on their payment due under monitoring contracts. The headache of dealing with defaulting subscribers is often rectified by the ability to collect late charges on delinquent payments in addition to interest charges on the remaining balance. When a subscriber defaults, alarm companies are often left with no choice but to sue for the money they are owed.

Let’s take a look at how this situation may come about in one state as an example. Under Florida law, it is unlawful for any person or company to reserve, charge or enforce the collection of interest payments that exceed a rate of 18% annually. In commercial transactions, a late charge may be imposed on delinquent payments if the contract so provides. This is applicable to alarm installation and monitoring contracts where the customer pays a monthly fee in exchange for the alarm installation and/or monitoring services.

Florida law permits late charges so long as: (1) the charge does not exceed 5% of the monthly payment and (2) the customer is in default for 10 days or longer. Late charges have no effect on the limit on interest charges, therefore it is lawful to collect a 5% late charge in addition to 18% interest when the contract so provides. Although Florida law allows for late charges not to exceed 5% in addition to interest charges, whether or not these charges may actually be collected depends entirely on whether the contract is properly drafted and thus enforceable. Failure to correctly provide for interest and late charges in a contract can not only preclude collecting these charges, but can affect other aspects of the contract as well. For instance, a contract provision that imposes interest charges and late charges must be properly worded or the company imposing these charges will not be able to recover attorney’s fees incurred in a legal proceeding commenced to collect such interest and late charges.

As most alarm companies discover, suing for money owed can be very expensive due to the attorney’s fees, court costs and wages paid to employees tasked with managing such recovery efforts. Now imagine having to deal with these defaulting subscribers while not being able to collect interest on the remaining balance of the contract, late charges on delinquent payments, and other charges such as attorney’s fees incurred while attempting to collect these payments.

If you are using poorly drafted contracts that you drafted yourself or obtained from an attorney with minimal experience in alarm installation and/or monitoring contracts, then you don’t have to imagine for too long because you will likely experience the awful process of trying to collect from a defaulting experience in court in the near future.

This brings me to my next point: why in the world would you not do everything in your power to avoid this? If you obtain a properly drafted contract then you don’t have to worry about whether or not you will be able to collect interest and late charges. Our contracts (alarmcontracts.com) have been upheld and enforced in every state, and alarm companies using such contracts have capitalized greatly from the financial benefits of using Kirschenbaum Contracts when signing up subscribers.

Florida is just one of many states that impose strict requirements on interest rates and late charges. It is also important to remember that each state has different laws, and these laws are constantly changing. Do not make the mistake of using the same contract in each state that you operate. Make sure your contracts comply with the specific state(s) requirements of the state(s) in which you are operating. If they don’t, I highly recommend you invest in contracts that do.

NOTE:  The opinions expressed in this column are not necessarily those of SSI, and not intended as legal advice.

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