What is the maximum late fee a licensed lender can charge?

• A. 2% of the amount of payment in default
• B. 10% of the amount of payment in default
• C. A flat fee of $50
• D. 5% of the amount of payment in default

Answer: (D)

The maximum late fee that a licensed lender can charge is 5% of the amount of the payment that is in default. This limit is established to protect borrowers from excessive fees that can accumulate due to late payments. The rationale behind this cap is to maintain fairness in lending practices and ensure that borrowers are not penalized disproportionately relative to their overdue payments. A late fee set at 5% strikes a balance between compensating the lender for the inconvenience and providing some leniency to the borrower during financial difficulties.

In contrast, higher percentages, such as 10% or 2%, or the flat fee of $50, do not align with the established maximum as per regulatory provisions, which aim to keep late fees reasonable and manageable for consumers.