Don’t we just love to hate those late fees for past due phone bills, library books not returned on time, rental movies not returned on time, late rent payments, late credit card payments….and many other such rental stuff? On a personal note, I have never been late on bills or credit cards, but a significant portion of my net worth must have gone in late fees for overdue library books and movie rentals 
..so yeah, I have a special hatred for late fees on those two items.
For a moment, let me be a devil’s advocate here and ask some questions: Would you have done things better (and on time) without late fees? How many days would you keep a rented book or a movie if there were no late fees or penalties associated with it? Would you have paid your credit card bills before the due date if there were no penalties for being late? Would you have paid the rent within the first 3 days of the month if there was no late fee associated with a late payment? If we humans are inherently nice and diligent, why does almost every other business/service provider threaten us into action with late fees and charges?
When I say *late fees and penalties*, that includes penalties (financial or otherwise) for being late such as: a negative entry in your credit report (a potential financial penalty), or loosing certain account privileges (penalty of service), etc.
The way I see it, we humans are inherently lazy (at least most of us are, otherwise there would be no need for late fees), and we need something to energize us into action. Late fees do exactly that…they push us (well at least most of us) into doing things, which otherwise, we would have postponed forever. Late fees and other fines help maintain an order into businesses/communities/networks that provide us with rental products or services. They are evil, but they are necessary. The benefits are not just at the business end, they are also for our own good most of the times. Just imagine what would happen if 20,000 students borrow books of their choice from the library and had no deadlines, fees or other penalties for returning them late…in all probability, the library will be empty in a few months with no more books left to borrow for anyone else.
If you think of it, almost all deadlines are also associated with penalties or fees. Deadlines in office projects (penalty of honor or appraisals), deadlines for scholarships or mail-in rebates (financial penalty of not getting one), deadlines for tax filing (associated penalties or loss of refunds..in some cases), deadlines for homeworks (penalty of lower grades)…and so on. People often say “deadlines are energizing”, the real reason behind this is: they are energizing because there are penalties associated with not meeting the deadlines. We need those (both the deadline and the penalty) to keep us going on the right track.
On a related note, let me also propose that the reason behind this late fee concept is that punishments are more effective than rewards in most actions, especially when you compare financial penalties with financial rewards (I do expect disagreement here). Let me know what you think of this.
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That’s a very good observation, golbguru. I must admit I’m lazy. If there were no late fees, I would’ve kept my library books forever.
Businesses have discovered this. Customers hate monthly fees but they don’t mind being penalized if they did something wrong. Instead of charging every customer a $5 monthly fee, the bank charges a $39 late fee or bounced check fee to customers who weren’t on top of things all the time. Now the customers who paid late subsidize the other customers.
The point with late fees and penalities is that it is low enough to act as a non-deterrent. Late fees and penalities are big income generators for businesses. It is in their best interest to keep them low enough to make the consumer feel he/she is not being screwed, when in fact he/she is being screwed. To stop bad behavior, you use punishment. Punishment would be to close the account and demand immediate payment in full. A late fee is not punishment, it is negative reinforcement. The business wants you to continue to be late so it can charge more late fees and penalties. You still owe the principle. If businesses demanded payment of the principle by closing the account, then they could not generate more revenue from a person’s financial indiscretions. Chances are if you are late, you will continue to exhibit the behavior. By having late fees and penalties, businesses gain both principle and the late fees and penalties. They in fact prefer if you are late. What a wonderful world.
TFB and Gooey Debt: Yeah I see that point, businesses are increasingly using them to generate more profits (whether that profit goes towards subsdizing non-late customers like TFB suggests is debatable). In fact, I should have mentioned some examples (like Blockbuster) who generate considerable income from late fees. Perhaps, people have become so lazy that some fees are negligible for them….or perhaps they develop some “late-fee resistance” (analogous to disease resistance) after it hurts them for a while. May be that’s why I keep returning library books late…but after a few late days, the fees become *deterrent* enough for me to scramble them back to the stacks.
Most of us are lazy, but some of us are Lazier than others :-).
I love late fees. Without late fees, credit cards would have a harder time financing their businesses. They wouldn’t be able to offer reward points, and sign-up bonuses that I enjoy. In a weird way, it’s survival of the fittest.
Hm, thus far the financial *punishment* is certainly deterrent enough for me, but I’d love to be rewarded for paying on time instead! I HAVE noticed some credit cards actually reward you for being lazy, though, by giving you reward points for carrying a balance, for doing a balance transfer, etc. Give with one hand, take with the other?
ya… i’m pretty sure if there wasn’t a late fee for Credit cards (which i’ve never been charged one) I might be tempted to let the cash sit in an account earning interest a day or two longer
Of course, Blockbuster doesn’t have late fees any more. Has it helped?
According to my brother, who works at a Blockbuster, no. People have brought in movies three months late! The way the new “no late fees” system works, you won’t get hit with late fees unless you keep the movies more than a week, and then your credit card will be charged for the full price of the movie. After that, you have 30 days to return it for a full refund of that charge. After that, I think you can still return it for a partial refund!
But some people bring movies back after three months, and complain that they can’t get every penny back! Hello?!? You had “Save The Last Dance” out from July to November!!! Of course you’re going to have to pay something!
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