URC 522 Article 20: Interest
Clause 20(a):
“If the collection instruction specifies that interest is to be collected and the drawee refuses to pay such interest, the presenting bank may deliver the document(s) against payment or acceptance or on other terms and conditions as the case may be, without collecting such interest, unless sub-Article 20(c) applies.”
Explanation:
This clause deals with situations where the collection instruction from the remitting bank specifies that interest should be collected from the drawee. If the drawee refuses to pay this interest, the presenting bank has the authority to release the documents upon payment or acceptance of the bill without collecting the specified interest. The presenting bank may choose to deliver the documents on terms other than those initially outlined in the collection instruction, as long as clause 20(c) does not apply. This flexibility is provided to facilitate the collection process and ensure that the main payment or acceptance is not delayed due to a dispute over interest.
Example:
Suppose a bank in Germany sends documents to a bank in India with instructions to collect $10,000 along with 5% interest. If the Indian buyer (drawee) refuses to pay the interest, the Indian bank may still release the documents to the buyer upon payment of $10,000, unless clause 20(c) is applicable.
Clause 20(b):
“Where such interest is to be collected, the collection instruction must specify the rate of interest, interest period, and basis of calculation.”
Explanation:
This clause requires that if the collection instruction includes a directive to collect interest, the details of the interest must be clearly specified. The remitting bank must provide the exact interest rate, the period for which the interest is to be calculated, and the method for calculating the interest. This ensures clarity and prevents disputes between the parties involved.
Example:
For instance, if a bank in Japan instructs a bank in Brazil to collect an invoice amount along with 6% interest, the instruction must specify whether the interest is simple or compound, the time frame (e.g., from the date of shipment to the date of payment), and the principal amount on which the interest is to be calculated.
Clause 20(c):
“Where the collection instruction expressly states that interest may not be waived and the drawee refuses to pay such interest, the presenting bank will not deliver documents and will not be responsible for any consequences arising out of any delay in the delivery of document(s). When payment of interest has been refused, the presenting bank must inform by telecommunication or, if that is not possible, by other expeditious means without delay the bank from which the collection instruction was received.”
Explanation:
This clause outlines the situation where the remitting bank’s collection instruction explicitly states that the interest is non-negotiable and cannot be waived. If the drawee refuses to pay this mandatory interest, the presenting bank is instructed not to release the documents. The presenting bank is also absolved of any liability related to delays in the delivery of documents resulting from this refusal. Additionally, the presenting bank is required to immediately notify the remitting bank about the refusal of interest payment through the quickest communication method available.
Example:
Imagine a situation where a bank in the United States instructs a bank in France that a certain interest amount must be collected and cannot be waived. If the French buyer refuses to pay the interest, the French bank is obligated to withhold the documents and promptly inform the U.S. bank of the refusal. The French bank is not responsible for any delays caused by this situation.