Answered by Shaykh Irshaad Sedick
I read the hadith that curses the taker, giver, recorder, and the two witnesses of interest agreements (riba) and that all are equal. If I buy a car with a fixed payment, the amount doesn’t change from my signed-off amount. But if I am late on a payment, I get charged a late (riba) fee. Does is a “riba clause” in my contract fall within the hadith above, even if I pay on time and never actually pay interest?
In the Name of Allah, the Most Merciful and Compassionate.
May Allah alleviate our difficulties and guide us to that which is pleasing to Him.
As indicated in your question, many contracts and payment plans operate with a penalty fee system. As you also indicated, there are differences of opinion about the Sacred Law validity of Penalty-fees. Your question, however, refers to what the permissibility is for entering a contract with a penalty fee clause, e.g., a credit card, when you know that you will not pay on time and, therefore, not pay riba.
A Contemporary Shafi’i Position
If and where you can abstain from contractual agreements involving penalty fees, you should, so that you steer clear of the area of disagreement as much as possible. However, the late renowned contemporary Shafi’i mufti, Shaykh Taha Ibn Yusuf Karaan, concurred with the general purport of the fatwa of Mufti Taqi Usmani, and Allah knows best.
The general purport of the above is that as long as you make sure to pay before any penalty fees are incurred, such contracts are permissible, and in many contemporary circumstances, unavoidable, and Allah knows best.
I pray this is of benefit and that Allah guides us all.
[Shaykh] Irshaad Sedick
Checked and Approved by Shaykh Faraz Rabbani
Shaykh Irshaad Sedick was raised in South Africa in a traditional Muslim family. He graduated from Dar al-Ulum al-Arabiyyah al-Islamiyyah in Strand, Western Cape, under the guidance of the late world-renowned scholar, Shaykh Taha Karaan.
Shaykh Irshaad received Ijaza from many luminaries of the Islamic world, including Shaykh Taha Karaan, Mawlana Yusuf Karaan, and Mawlana Abdul Hafeez Makki, among others.
He is the author of the text “The Musnad of Ahmad ibn Hanbal: A Hujjah or not?” He has served as the Director of the Discover Islam Centre and Al Jeem Foundation. For the last five years till present, he has served as the Khatib of Masjid Ar-Rashideen, Mowbray, Cape Town.
Shaykh Irshaad has thirteen years of teaching experience at some of the leading Islamic institutes in Cape Town). He is currently building an Islamic online learning and media platform called ‘Isnad Academy’ and pursuing his Master’s degree in the study of Islam at the University of Johannesburg. He has a keen interest in healthy living and fitness.