Does Late Payment Fees Render a Contract Impermissible?

Answered by Shaykh Muhammad Carr

Question

I run a fragrance business, Alhamdulillah, and I am considering listing my products on a price-comparison website that charges on a per-click basis. However, their agreement includes late payment fees, which I understand are impermissible (Riba) in Islam.

I have read that such contracts may sometimes be tolerated for necessities like housing if one takes proactive measures to avoid delays. For this service, I can set a monthly spending limit and allocate funds to a dedicated account to ensure timely payments and avoid late fees.

Given my proactive measures to prevent Riba, would this arrangement render the contract permissible? Or would it still be impermissible since the potential for Riba remains?

Answer

In the Name of Allah, the Most Merciful and Compassionate.

I pray you are in good faith and health. May Allah reward you for ensuring your transactions are compliant with Islamic Law.

Allah says,

“So fear Allah all you can, and hear, obey and expend: It were better for your very selves.” [Quran, 64:16]

Given your proactive measures, which practically eliminate the possibility of paying interest, it is entirely permissible for you to list your products on the website referenced above. [See: ‘Usmani, Fiqh al-Buyu‘]

Reference

Your situation resembles a credit card that allows a grace period before interest charges kick in. Regarding it, Mufti Taqi ‘Usmani says,

“The ruling on entering into a contract with a card issuer, where the agreement stipulates that if the cardholder does not pay the bill within the grace period—typically one month—the issuer will charge an additional amount, is that such a stipulation is impermissible in Islamic law because it constitutes riba (usury).

However, the cardholder can avoid this by instructing the card issuer to directly deduct the bill amount from their account. Some card companies may allow this, either from the cardholder’s account with the issuer or from their account with another bank.” [Ibid.]

Pragmatic Approach

Islam, while rooted in principles, is inherently pragmatic. Based on the concept of general affliction, what is otherwise prohibited may be permitted in specific circumstances, such as when interest charges are imposed for delayed payments. This reflects the words of the Messenger of Allah (Allah bless him and give him peace), who said:

“A time will come upon people when they will consume usury (riba).” It was said to him, “All of them?” He replied, “Whoever does not consume it will still be affected by its dust.”

If a person cannot take measures that will eliminate the possibility of interest charges, such agreements would be rendered permissible based on the rule of general affliction.

Such conditions have become widespread in our times, as they are found in many transactions, such as dealings with electricity companies, telephone companies, and others. The stipulation of late payment fees exists in all these cases. It would be problematic to say that it is impermissible for a person to enter into contracts with such companies to obtain electricity, telephone services, and the like. Rather, the practice has been to allow individuals to contract with these companies without objection, on the condition that they resolve to fulfill their obligations on time. This is permitted due to the general necessity.

Mufti Taqi ‘Usmani says,

“If it is not possible to arrange such a direct payment system, is it permissible for a Muslim to take the card and sign the contract containing this condition and pay the bills on time, before any usurious increase is imposed, and without actually applying this condition?

There is a difference of opinion among contemporary scholars on this matter. Some have said that merely signing a contract with such a condition constitutes entering into an impermissible agreement, and thus it is not allowed, even if one intends not to apply the condition in practice. Others have said that if the cardholder is certain that this condition will not be applied in reality due to their firm resolve to pay the bill within the specified period, then it is permissible. They supported their position with the narration of Aisha (Allah be pleased with her) concerning the story of Barira (Allah be pleased with her), in which the Messenger of Allah (Allah bless him and give him peace) said to her: ‘Set the condition for them that loyalty (wala’) is for the one who emancipates.’ Thus, he allowed the inclusion of the condition, as it would not actually be implemented.” [Ibid.]

And with Allah alone is our success.
[Shaykh] Muhammad Carr
Checked and Approved by Shaykh Muhammad Abu Bakr Badhib

Shaykh Muhammad Carr has dedicated his life to studying and transmitting our beautiful deen. His studies have taken him around the globe, where he has benefitted from many luminaries. Under the guidance of his teachers – Shaykh Taha Karan, Shaykh Yaseen Abbas, Shaykh Muadh Ali, and many others – Shaykh Muhammad has grown to appreciate the beauty and benefits of diverse scholarship. He completed his memorization of the Qur’an at Dar al-Ulum Zakariyyah in September 1997 and received an Alimiyya Degree in 2006 from DUAI (Darul Ulum al-Arabiyyah al-Islamiyyah). He is also affiliated with Masjid Auwal in Bo Kaap, Cape Town (the oldest mosque in South Africa), where he serves as a co-imam, and Dar Al-Safa, where he has taught since 2018. As a teacher, he imparts the wisdom of our heritage and tradition by opening the door to students. As an imam, he has the unique opportunity to serve his community in daily life.

In addition to his roles as a teacher and imam, Shaykh Muhammad Carr has contributed significantly to the administrative and advisory aspects of Islamic institutions. Since 2023, he has served as the Administrative Director at The Imam Kurani Institute, contributing to the institution’s growth and development. He continues to pursue traditional Islamic Sciences, possessing a keen interest in Islamic Contract Law and Finance. Shaykh Muhammad has been a Shari‘a Board Member for Islamic Asset Management & Insurance Companies since 2001, aligning financial practices with Islamic principles.