Expert Q&A

How to escape the credit card fee cycle

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, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs.

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Question for the expert

Dear To Her Credit,
Can a credit card company continue to charge you late fees, over-limit fees and maintenance fees after your account has been closed by the bank?

I missed one payment with my credit card company for the first time in three years. I called and asked if I could make reduced payments until my financial situation improves, but they refused to work with me. I’ve been making less than the minimum payment because I can’t afford to make the total due with the fees. The more fees and interest they tack on, the more impossible it becomes for me to make the minimum, let alone make any progress on it.

I have sent in letters and made numerous calls to the company to try and work out my account. I called today and was told my account was closed, but they plan to continue to charge my account over-limit fees and late fees.

Can they do that? What can I do to stop it?  — Quana

Answer for the expert

Dear Quana,
Once you get behind on payments, the fees can start coming like a barrage of snowballs. It makes it hard to get back on your feet! A few years ago, a friend of mine owed about $1,000 that, for one reason or another, got away from her. The late fees and over-limit fees started piling up, the interest rate went up to 33 percent, and before she knew it, she owed $3,000. Ouch!

Unfortunately, yes, they can do that. If you owe money on an account, even though the bank has closed the account and you can no longer make charges on it, you are still subject to late fees, over-limit fees and continuing interest expense on all of the above.

Every time your payment is late or is less than the minimum, you pay a fee. And every month your balance remains over your credit limit, you pay another fee.

The exception is the annual fee. If the account is closed, you should not have to pay the annual maintenance fee.

The Credit CARD Act of 2009 contains provisions to regulate fees, including over-limit fees. Under the section of the law dealing with over-limit charges, consumers can choose whether they want to pay over-limit fees if they buy something that puts them over their credit limit, or if they want the transaction to be rejected instead.

The new law also limits the over-limit fee to once every billing cycle. This portion of the law goes in effect Feb. 22, 2010.

On Aug. 22, 2010, additional provisions go into effect. One of them states that over-limit fees, late fees and other fees must be reasonable and proportional to the violation. As of this moment, exactly what that means hasn’t been spelled out.

Contacting your credit card company was a good first step. However, the banks are inundated right now with people asking for help, many of whom are in worse shape financially than you are.

The next step is to get help from a nonprofit consumer credit counseling agency. A credit counselor can help you explore all the options for your situation. In addition, the counseling agencies have negotiated guidelines with credit card issuers for setting up debt management plans or forbearance programs. Under these programs, the bank may reduce your interest rate, waive fees and let you make lower minimum payments, giving you a chance to start making payments on time again.

Laws and regulations can only do so much to protect you from high fees and interest charges, but you can find the help you need to get back on your feet again. Once you get relief from high fees and interest expense, you can take control of your finances and start working your way out of debt once and for all.

See related:8 tips to keep credit card rates and fees low, Fed: Consumers must opt in to debit card overdraft fees, Credit card forbearance programs offer reprieve from debt, Minimum payments mean maximum trouble with debt

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