Fines – for instance, traffic fines – are a form of discretionary punishment (ta`zîr). These are punishments that the country's legislative and judicial processes are free to adopt for crimes whose punishments are not set forth in the sacred texts.
Discretionary punishments are determined by the responsible agencies of government. Historically, these punishments have included imprisonment, flogging, public humiliation, and monetary fines. These punishments are supposed to suit the seriousness of the crime and the criminal's circumstances, as well as the cultural and social milieu in which the crime takes places.
The adoption of discretionary punishments in a Muslim country's penal code and by the judiciary falls under the broad field of Islamic policymaking, which aims at safeguarding society and protecting the lives, property, and rights of its individual members.
Scholars have differed regarding the use of monetary fines as a form of discretionary punishment. The strongest view, or course, is that such fines are lawful for a Muslim state to adopt. Ibn Taymiyah and Ibn Qayyim have said: "The use of monetary loss as a form of discretionary punishment – both through the seizure of property and through the legislation of fines – is valid."
There is proof for this permissibility in the Sunnah, in the judicial rulings made by Prophet Muhammad (peace be upon him). For instance, he ruled that game hunted in the sacred precincts of Madinah should be confiscated and in his command to break the pots wherein wine was being stored. We also have where he ordered `Abd Allah b. `Umar to burn two saffron-dyed garments. We see it in the penalty he set for the theft of unsecured wealth.
We have other precedents in the judicial decisions of the Rightly-Guided Caliphs. Both `Umar and `Alî ruled that the venues where alcohol was being sold should be burned down. They also fined those who refused to pay their Zakâh tax by confiscating 50% of their wealth. `Umar ordered the destruction of the palace of his provincial governor, Sa`d b. Abi Waqqâs, when he learned that Sa`d had it built in order to frustrate public access. All of these rulings are authentically established in the Islamic judicial literature. [refer to: Tabsirah al-Ahkâm (2/261)]
We can conclude from all of this that pecuniary fines, as well as the destruction and seizure of property, are a permissible form of discretionary punishment. Such punishments can be effective in preventing and discouraging crimes that are harmful to society. Consequently, those punishments play a positive role in safeguarding the public welfare – the lives, property, and rights of the people.
Allah says: “O you who believe, obey Allah and obey His Messenger and those in authority among you.” [Sûrah al-Nisâ’: 59]
As for the question of increasing the amount of punitive fines in the case of late payment, this is also permissible. In the case of a traffic fine, for example, this could be understood as setting two rates: a lower rate for paying on time and a higher rate for late payment.
However we choose to understand the increase in the fine, it is not a case of interest. This is because interest only occurs when there is an exchange of wealth, like in a purchase or a sale. This is not the case with pecuniary fines. There is no trade or commerce going on. The fine is nothing other than a form of punishment.
And Allah knows best.