Iowa Supreme Court Rules That Residential Roofing Contract Not Subject to the Iowa Consumer Credit Code
In Degeneffe v. Home Pride Contractors, Inc., 16 N.W.3d 501 (Iowa 2025), the Iowa Supreme Court ruled that a residential roofing contract was not a “consumer credit sale” subject to the Iowa Consumer Credit Code (“ICCC”). Home Pride Contractors, Inc., entered into a roofing contract with Lance and Tracy Degeneffe to replace roof gutters and siding on their home “in exchange for payment of the replacement cost value provided to the Degeneffes under their homeowners’ insurance policy, plus any costs necessarily incurred for overhead, supplements, and profit.” The roofing contract provided, “Upon completion of work as set forth by the agreement, Customer agrees to sign a completion certificate and pay the balance of the contract (1.5% added after 30 days),” and “SHOULD DEFAULT BE MADE IN PAYMENT OF THIS AGREEMENT, CHARGES SHALL BE ADDED FROM THE DATE THEREOF AT A RATE OF ONE AND ONE-HALF (1-1/2) PERCENT PER MONTH (18% PER ANNUM) OR THE MAXIMUM RATE ALLOWABLE BY LAW ON THE REMAINING BALANCE NOT PAID, WITH A MINIMUM CHARGE OF $2.00 PER MONTH, AND IF PLACED IN THE HANDS OF AN ATTORNEY FOR COLLECTION, ALL ATTORNEYS AND LEGAL FILING FEES SHALL BE PAID BY CUSTOMER ACCEPTING THIS AGREEMENT.”
After signing the contract, Home Pride repaired the roof, the Degeneffes’ insurance company paid the Degeneffes the replacement value under the insurance policy ($13,164.37), and Home Price billed the Degeneffes for that amount. However, the “Degeneffes refused to pay for Home Pride's services, accusing Home Pride, a general contractor, of being storm chasers seemingly because Home Pride's subcontractor completed the roofing repairs rather than Home Pride itself.” The parties filed lawsuits against each other, with the Degeneffes claiming that Home Pride violated various provisions in the ICCC in its attempt to collect on its bill. The parties each filed motions for summary judgment, with Home Pride asking the district court to rule that the ICCC was inapplicable because Home Pride was not “engaged in consumer credit transactions.” The district court rejected Home Pride’s argument, and concluded that the roofing contract was a consumer credit sale under the ICCC. Home Pride then appealed to the Iowa Supreme Court.
The Iowa Supreme court explained that the “appeal turns on whether the roofing contract is a ‘consumer credit sale’ under the ICCC as defined in Iowa Code section 537.1301(13)(a).” Under that statute, a “consumer credit sale” is defined as a “sale of goods, services, or an interest in land in which,” among other requirements, “credit is granted either pursuant to a seller credit card or by a seller who regularly engages as a seller in credit transactions of the same kind,” and “[e]ither the debt is payable in installments or a finance charge is made.” The Supreme Court concluded that Home Pride did not extend credit to the Degeneffes, and that the interest charged under the roofing contract was not a finance charge. Therefore, the roofing contract was not is a “consumer credit sale” subject to the ICCC.
As to the issue of whether the roofing contract extended credit to the Degeneffes, the “ICCC defines ‘credit’ as “the right granted by a person extending credit to a person to defer payment of debt, incur debt and defer its payment, or to purchase property or services and defer payment therefor.” The Degeneffes argued “that Home Pride extended credit because the roofing contract allowed them to defer payment for up to thirty days past the due date without incurring the 1.5% monthly charge. Home Pride argue[d] that it did not extend credit to the Degeneffes because the roofing contract required payment in full upon completion of the work.” The Court held that Home Pride’s roofing contract fell within the rule that “a contract requiring full payment at the time of the relevant transaction is not an extension of credit, even when the contract provides for a delay in attempting to collect sums owed before imposing a penalty—i.e., a forbearance in collecting sums or a grace period.” Under Home Pride’s roofing contract, “the full contract price was due at completion of the work,” and the Supreme Court reasoned, “[r]equiring payment in full is the converse of extending credit.” The Supreme Court further explained, “[t]hat the contract also provided for default interest at the rate of 1.5% per month and collection costs to be added if payment was not made within thirty days did not give the Degeneffes the ‘right’ to defer the payment during that time. Rather, it specified the penalty for their breach if they defaulted on the contract payment term requiring full payment as soon as the job was completed, giving them a grace period before imposing the default penalties.” Put another way, “a thirty-day window to allow for payment of the contract price before imposing default interest ‘does not establish that credit was granted; it only demonstrates forbearance in collecting sums which, if owed, were due and payable at the time the debts were incurred’—i.e., when the roofing repairs were completed.”
As to whether the interest charged under the roofing contract was a finance charge, the Supreme Court did not dive into that issue because “we have already concluded that Home Pride did not grant credit to the Degeneffes, so whether or not the interest charged fits the definition of a ‘finance charge’ is immaterial.” The Court explained that “the ICCC defines a finance charge as a charge that is ‘imposed ... by the creditor as an incident to or as a condition of the extension of credit.” Because “[t]he roofing contract required full payment upon completion of the work and therefore was not an extension of credit. Thus, even if the default interest of 1.5% per month was a finance charge, it was not part of a credit transaction.”
This is a good case for residential home contractors. Interest provisions for late payments are common in construction contracts, including residential construction contracts. This decision makes clear that inclusion of interest provisions in residential construction contracts does not trigger the ICCC, so long as the contract makes payment due immediately upon completion of the work, even if it provides a grace-period after that due date before interest begins to accrue. A different result would probably occur if, for example, the contract makes payment due 30 days after completion of the work, and charges interest during that 30-day period.
The decision raises the question of whether the ICCC would apply if the contract makes payment due 30 days after completion of the work, but only charges interest after expiration of that 30-day period. It does not appear that the ICCC would be triggered in that situation because the Court noted that the ICCC defines a finance charge as “a charge that is ‘imposed ... by the creditor as an incident to or as a condition of the extension of credit.’” So even if that 30-day period before payment is due qualifies as an extension of credit, if a contractor does not charge interest during that 30-day period, then it does not appear that there is any charge “imposed as an incident to or as condition of the extension of credit.” This conclusion is supported by the case of Landon v. Mapco, Inc., 405 N.W.2d 825 (Iowa 1987), where the Iowa Supreme Court concluded that interest being charged was a finance charge because the “monthly finance charges which would be waived if payment was made within thirty days.” Charging interest during the 30-day period but then waiving it is qualitatively different than not charging any interest during the 30-day period. Furthermore, the ICCC specifically states that a finance charge does not include “[c]harges as a result of default or delinquency if made for actual unanticipated late payment, delinquency, default, or other like occurrence unless the parties agree that these charges are finance charges.” A residential contractor charging late-payment interest to a homeowner appears to fit comfortably within the concept of being interest charged for an “unanticipated late payment.”
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