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Court Denies Consumer the Opportunity to Challenge Excessive Late Fee

Without giving the consumer a chance to prove his case, a court threw out a challenge to an unreasonably high late fee of $15 that exceeds the amount paid late.


New Jersey, like most states, prohibits unreasonable late fees in contracts. A consumer was charged late fees of $15 each when he made several late payments on his monthly water delivery bill. He filed a class action lawsuit against Nestlé, claiming the late fee is excessive and unreasonable in violation of New Jersey law because it often exceeded the amount paid late, significantly exceeded the fee charged by Nestlé’s competitors, and was unrelated to any cost caused by the late payment. 

A federal district court dismissed the challenge before trial, finding that the plaintiff failed to allege a violation of New Jersey law. The court held that a $15 flat late fee is not excessive even though it amounted to greater than 100 percent of the late payment. It also refused to apply the principle that applies to commercial contracts in New Jersey that a late fee of greater than 5 percent of the amount paid late is unreasonable. Finally, the court held the late fee did not violate New Jersey law because it was disclosed in the contract.   

In the appeal, AARP Foundation Litigation attorneys filed AARP’s friend-of-the-court brief to argue the consumer should be able to challenge an unreasonably high late fee, even when it is disclosed in the contract. The brief pointed out other court decisions that refused to enforce unconscionable contract terms. Enforcing unfair and unreasonable contract terms allows a business to take advantage of consumers, making consumer protection laws irrelevant. AARP’s brief argued that merely disclosing an unfair or unreasonable price in a contract does not relieve a business of liability for violating the law.

AARP’s brief also discussed an additional problem: virtually all of the information about the challenged practice is held or controlled by the business being sued. Consumers need a chance to prove their case.

The U.S. Court of Appeals for the Third Circuit disagreed and upheld the lower court’s decision. The court ruled that the plaintiff had not and could not allege a necessary element of New Jersey law — deceptive conduct — because the late fee was disclosed in the contract. The court held that the common law fraud claims that the fees were unreasonable were foreclosed because the plaintiff had voluntarily paid the lae fees.

What’s at Stake

The court decision gives every business in New Jersey a green light to increase late fees to $15 regardless of the circumstances. A $15 late fee is often a lot of money for anyone on a fixed budget, especially where it exceeds the amount paid late. Cash flow constraints caused by rigid payment dates for Social Security or other retirement benefits may trap consumers into paying excessive late fees. Courts must protect consumers from illegal or unreasonable fees or other unfair contract terms, because consumers are at a severe disadvantage when they enter into form contracts packed with fine print that they have no opportunity to negotiate or alter.

Case Status

Ciser v. Nestle Waters was decided by the U.S. Court of Appeals for the Third Circuit.