Can a card issuer charge interest on late fees?

To Her Credit columnist Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs.

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Question Dear Sally,
I inadvertently used a credit card not used for two years to purchase an item on Amazon. This was back in September 2016, and I never received an electronic statement or phone call from the card issuer until Jan. 14, 2017.

When I contacted the credit card company on Jan. 21, I was allowed to pay the principal plus the accrued interest, but they would only remove one $35 late fee when I explained what happened. I still owe $95 which is entirely late fees. They told me today that they will be able to charge interest on this $95 balance even though there is no principal owed. Is this correct? Will they be able to assess additional late fees on the unpaid “late fees”? – Heather

Answer

Dear Heather,
Yes, credit card companies can and do charge interest on late fees. They will also charge interest on interest if a balance rolls over to another month. Any balance on your account can be subject to interest charges, and interest charges and late fees are part of that balance.

Using a card other than the one an individual intended must happen all the time. It’s so easy to do, when old credit and debit cards are stored online. One of the secrets to Amazon’s success, I believe, is that Amazon makes it so easy to purchase things and check out. I can buy things almost in my sleep.

Unfortunately, if you don’t take a good look at the order before it’s final, you can end up using a different payment method than you intended. I’ve even had my order flip back to an old shipping address or that of someone I have sent presents to in the past.

The problem only gets worse when you don’t get a bill from the issuer of the dormant credit card. I don’t know why you didn’t get the bill in the mail – have you moved since you last used the card?

Whatever happened, here you are, several months later, with late fees and interest charges piling up on your late fees.

To try to get the late fees reduced, I recommend writing a letter, on paper, to the credit card company. You may be able to at least have the late fees reduced to a reasonable percentage of the outstanding balance at the time the late fees were applied. You can point out that you didn’t receive the bill, although in my experience, banks can be unmoved by that argument. It’s hard to prove you didn’t get something.

Paying late fees and interest on late fees may not be the worst part of this fiasco. You should check your credit report for free at either My.CreditCards.com or annualcreditreport.com to see what the credit card company has reported. A few months’ worth of missing payments on one card can look bad on your credit history.

You may want to add a note to your credit file about the late payments, explaining that you didn’t know about the balance and that you paid it as soon as you found out. Adding a note won’t help your credit score, but it may help if a prospective creditor wants to know why you have a negative mark on your report.

While you’re cleaning things up, it’s a good idea to delete all old payment methods and addresses from Amazon and other online shopping sites, to keep mistakes like this from happening again.

After you’ve done what you can, the best thing to do is to pay the $95, consider it a hard lesson learned, and move on.

If your credit report is otherwise in good shape, this one negative mark is embarrassing, but it won’t last forever. Unless you were planning to buy or refinance a house, or apply for other credit, it may not affect you at all. Just keep paying your bills on time, and double-checking everything before you finalize online purchases. Your credit score will recover soon, and you’ll be fine.

See related: 5 ways to avoid (or deal with) late fees, Chronic late card payments: How bad can fines, fees get?

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Updated: 11-18-2017