The Salafi ruling on additional charges for delay in fees

And upon you be peace and the mercy of Allah and His blessings.

Regarding imposing additional charges or a financial penalty for delay in payment of fees, the Shariah ruling in light of the evidences of the Book and the Sunnah and the fatwas of reliable research scholars is as follows:

According to the prevailing principles and the Shariah texts, taking an additional amount or charges for delay in payment of fees is not permissible, and it falls under the category of riba, i.e. interest.

When the fee of an institution (a school, university or any service-providing institution) becomes fixed for its date and becomes payable, that amount becomes a Shariah debt (dayn) owed by the student or the consumer. It is an established principle of Shariah that taking any financial increase on the principal amount of a debt because of delay in its payment is called interest.

1. Resemblance to the riba of Jahiliyyah: In the era of Jahiliyyah, the basic method of interest was exactly this: when a borrowed amount owed by someone became payable and he could not pay it on time, the creditor would say: "Either pay the amount, or increase the amount." The penalty imposed for late fees works on exactly this principle, that if the fee is not given on time the amount is increased, which is clear interest.

2. Qur'anic principle: Allah Almighty says:

﴿وَإِنْ تُبْتُمْ فَلَكُمْ رُؤُوسُ أَمْوَالِكُمْ لَا تَظْلِمُونَ وَلَا تُظْلَمُونَ﴾ (And if you repent, then for you is your principal wealth; do not wrong, and you will not be wronged.) [Surah al-Baqarah: 279]

From this verse it is known that taking anything extra on the principal amount (whether it is a loan or a payable fee) because of the passage of time is oppression and impermissible.

3. Fiqh principle: It is a well-known fiqh principle of Shariah that every loan which draws with it any benefit or increase is interest. Since a payable fee also takes the status of a dayn and a debt owed by a person, therefore the financial increase occurring on it falls under the ruling of interest.

To protect institutions from financial loss and from delay on the part of consumers, the scholars have mentioned such alternative methods which do not fall within the sphere of interest and which should be adopted:

Administrative action: Instead of imposing a financial penalty when a fee is late, an institution can take other administrative measures, such as temporarily suspending the student's admission or name, preventing him from sitting in the examination, withholding the result, or blocking the library card.

Giving a discount in advance: An institution can adopt this method: it fixes the original fee (for example 10,000), and announces that whoever pays before the fixed date will be given a discount of 1,000 rupees and only 9,000 will be taken from him. After the fixed date has passed, the discount will end and only the original fee (10,000) will be taken. This method is permissible in Shariah because in it no increase above the original fee is being taken.

Summary: According to authoritative fatwa committees (for example, it is stated in Resolution No. 109 (12/3) of the International Islamic Fiqh Academy — OIC — that in a contract in which the original liability is a debt, a financial increase for delay is explicit riba), imposing late fee charges for delay in the fee of a school, university or any institution is impermissible because it is a form of interest; therefore institutions should adopt its permissible alternative methods.

Translated from the original Urdu fatwa.