The Late Fee Clause a Hawkesbury Non-Profit Could Not Actually Enforce

The situation

Dustin worked as a letter carrier, Chelsea as an auto body technician, and Yusuf split his time between a day job and volunteering, and all three sat on the volunteer board of a small not-for-profit in Hawkesbury that ran a members-based community program funded partly through annual membership dues and partly through fees for services the organization provided directly to members. Like a lot of small not-for-profits, the board relied heavily on a handful of long-standing policies that had been written years before any of the current directors joined, updated occasionally but never formally reviewed by a lawyer.

One of those policies governed what happened when a member fell behind on dues or service fees: the organization would apply interest on the overdue balance and, after a set number of missed payments, a flat late fee, then eventually refer the account to a collections process. It was a reasonable plan on paper, meant to keep the organization's modest cash flow predictable and to be fair to the members who paid on time by not letting others fall permanently behind without consequence. For years it had worked quietly in the background, applied automatically by whoever handled the books, with almost no member ever disputing it.

That changed when a member with a larger-than-usual overdue balance, built up over an extended stretch of missed payments, challenged the accumulated interest and late fees directly, arguing the amounts were higher than what the organization was legally allowed to charge and asking the board to explain exactly where the numbers came from. The board could not immediately answer. No one on the current board had drafted the policy, no one was certain which version of it was currently in effect, since it had been revised more than once over the years, and no one could say with confidence whether the interest rate the policy specified had ever been properly re-disclosed to members after a change.

By the time Dustin, Chelsea and Yusuf brought the dispute to us, the organization had already sent the member a formal notice defending the charges as calculated, using the policy's current wording, without realizing that a procedural step required to keep that version of the policy enforceable had been missed months earlier, before any of them had any reason to know it mattered.

What the law actually said

Interest and late fee terms are not automatically enforceable just because an organization writes them down and applies them consistently. Federal law caps how much interest can be charged before it becomes a criminal rate, and separately requires anyone charging interest to disclose the equivalent yearly rate clearly, or risk being limited to a much lower default rate. On top of that federal floor, an organization dealing with individual members rather than commercial counterparties usually has its own governing documents layered on top, and those internal disclosure requirements matter just as much as the statutory ones. A policy that charges interest at a rate the organization is not entitled to charge, or that fails to disclose the effective annual rate clearly to the people being charged, can leave the organization unable to collect the interest at all, even if the underlying debt itself is entirely legitimate.

The specific problem here was procedural rather than a matter of the rate being too high. The organization's governing documents required any change to the credit and collections policy, including a change to the interest rate or fee structure, to be formally approved by the board and communicated to members within a defined window before it took effect. A previous board had voted to adjust the late fee structure roughly eighteen months earlier, but the notice to members that the internal rules required had never gone out. Nobody caught the gap at the time because the change seemed administrative, and nobody revisited it until this dispute forced a full review.

That missed step mattered more than its size suggested. Missing the required notice was a real defect, and it gave any member charged under the revised structure a strong argument that the fee structure had never properly taken effect. It did not follow automatically that every fee charged since was void. Ontario courts look at whether the irregularity actually prejudiced anyone, and an organization can usually cure a lapse like this by approving and re-noticing the policy properly going forward, which meant the practical exposure was normally to the members who complained, within the ordinary time limits for making a claim, not an automatic unwinding of everything charged under the structure. This was not a question of whether the underlying members owed money for services or dues actually provided. They did. It was a narrower but still serious problem: the specific interest and late fee amounts layered on top of those legitimate debts rested on a policy change that had never been properly put into force, and any member who pushed back on those amounts had a real argument to make.

The deadline had already been missed eighteen months before we were retained, which meant there was no way to retroactively fix the disclosure failure for the period that had already passed. What remained possible was containing how much further exposure the organization carried, correcting the policy properly going forward, and being honest with the board about what could not be undone.

What we did

1. Reviewed every version of the credit and collections policy the organization could locate. Because the policy had been revised more than once without careful version control, we needed a clear timeline showing exactly which fee structure was in effect on any given date, and which changes had and had not been properly communicated to members under the organization's own governing rules.
2. Confirmed the specific procedural failure and its scope. We identified the exact date the disclosure should have gone out, confirmed against the board's own minutes and email records that it never did, and calculated how many members had been charged interest or late fees under the improperly adopted structure over the intervening eighteen months, which turned out to be a modest but not trivial number of accounts. Knowing the scope before advising the board mattered, since a small fix and a wide-reaching one call for different conversations.
3. Advised the board honestly that the fees already charged rested on shaky ground. This was not a welcome conversation. Dustin, Chelsea and Yusuf had hoped there was a way to fix only the disputed member's charges and leave the rest alone, but every account charged under the improperly adopted structure carried the same argument, and picking and choosing which accounts to defend based on who happened to complain would have been harder to justify, and worse for the organization's standing with its members, than treating the whole group the same way.
4. Calculated the total amount that needed to be reversed or credited across affected member accounts. We worked with the organization's bookkeeper to identify every account touched by the improperly adopted fee structure, distinguishing late fees and interest that needed reversal from the legitimate underlying dues and service charges, which remained fully owing and were not affected by the disclosure problem.
5. Drafted a corrected credit and collections policy that met the organization's own governance requirements and the applicable disclosure rules. The new version set out the interest rate, the late fee structure, and the notice period in plain language, and specified how and when future changes would need to be communicated to avoid the same gap recurring. We wrote the notice mechanics into the policy itself, rather than leaving them to be inferred from the governing documents, so a future board would not have to reconstruct the rule from scratch.
6. Prepared the board resolution and member notice needed to properly adopt the corrected policy. We built in the full disclosure window the governing documents required, this time with a documented record of when notice was sent and to whom, so the organization would have clear proof of compliance if the question ever came up again. That proof was the entire point: the original failure was invisible precisely because no one had kept a record of it, and a policy is only as defensible as the paper trail behind it.
7. Advised on communicating the fee reversal to affected members without inviting further disputes over the underlying dues. We drafted plain-language correspondence explaining that certain fees were being credited due to an administrative notice gap, while making clear the underlying dues and service charges remained valid and owing, so members understood the correction without concluding their entire account had been forgiven.
8. Recommended an annual governance review for policies with financial terms. Given that this gap sat undetected for a year and a half, we suggested the board add a standing item to its annual calendar specifically reviewing any policy that charges members money, so a future change gets checked against the notice requirements before it is applied rather than after a dispute forces the question.

The outcome

The organization reversed the improperly charged interest and late fees across every affected account, a total that came to a modest sum in the low thousands of dollars once added up, funded out of the organization's general reserves. The disputing member's account was corrected along with the rest, and the underlying dues and service charges that had never been in question remained fully payable and were pursued through the organization's ordinary, now properly disclosed, process.

This was a contained loss, not an avoided one. The board had to accept that money already collected, in good faith and under a policy nobody currently serving had any hand in mishandling, was better given back than defended, since the correct internal steps required to put that fee structure in force had never been completed and every account carried the same weakness. Dustin described it afterward as the most uncomfortable board decision he had been part of, not because the amount was large, but because it meant acknowledging a mistake to members who had simply paid what they were told they owed.

The corrected policy has been in effect since, properly disclosed and documented, and the organization has not faced a further dispute over its terms. The annual governance review the board adopted afterward caught a smaller, unrelated notice gap in a different policy the following year, before it became a problem, which the board has taken as some confirmation that the review is worth the time it takes. The financial cost of the original gap was real and could not be recovered, but it did not repeat.

The disputing member, once the account was corrected and the reason explained plainly, did not pursue the matter further and remained a member of the organization. Chelsea noted afterward that the willingness to reverse the fees without argument, rather than defend a position that was shaky at best, likely mattered more to how the member received the outcome than the dollar amount involved. A drawn-out dispute over a few hundred dollars of disputed interest would have cost the organization more in goodwill, and possibly in legal fees, than simply conceding the point once the underlying problem was clear.

For a volunteer board running on modest resources, the episode also underlined how easily a policy adopted with good intentions can drift out of compliance with an organization's own rules without anyone noticing, simply because no one on the current board wrote it and no one had reason to check it. The fix cost the organization real money it could not get back, but it left the board with a policy it could rely on and a process for catching the next gap before a member has to find it first.

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