Unpaid fees from canceled card can end up in collection

Opening Credits columnist Eric Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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Question Dear Opening Credits,
I opened a credit card in 2004 and never used the card. When I received the first bill for fees, I called and canceled the card. Just today, I received a phone call from someone claiming to be an attorney who says they are taking me to court and if I don’t settle out of court for $436, then I will owe over $2,000. I didn’t even know anything about this and assumed it was over once I canceled the credit card in 2004 shortly after opening it. Is this legal for them to do? – Linda


Dear Linda,
Before I deliver good news to you, I’d like you to understand what probably happened so you, too, can be an expert. The problem was your initial presumption that once you closed the card, your responsibilities ended there. However, if you didn’t ensure that the annual fee (or any other fees) would be waived when you called to cancel the credit card, the issuer could have closed the account, but not discontinued billing you for any unpaid fees. Why you didn’t get a bill is a mystery. Maybe you did and ignored the mail, or you moved around a lot and didn’t receive the letters? Who knows? It was a long time ago.

Since it appears that those fees weren’t waived, by the time the creditor charged off the account  – about six months after the delinquent debt didn’t get satisfied – the amount you owed escalated with accumulated interest. Then a collection agency bought the delinquent debt for less than the original sum, intending on getting you to send the entire balance. The account could have been sold and repurchased many times over, with each company getting a bigger discount on the debt, since as time passes it becomes statistically less collectible.

Eventually an old account can land with a collection agency that specializes in doing something really interesting: getting people who may legitimately owe money to pay up, but who can’t be sued for the debt or even have it listed on their credit reports anymore.

And that is where you are. In no state does the statute of limitations run longer than 10 years. This account has passed that mark at least one and a half years ago (the statute of limitations time clock typically begins right after the charge-off), putting you firmly in the safe zone. You can’t be successfully sued for this debt unless you reaffirm that the debt is yours or make a payment.

Just as wonderful is that it shouldn’t be on your credit report either. Negative information such as late payments, charge-offs and collection activity can remain listed for only seven years.

So, you can tell this attorney that you know the debt is past the statute of limitations for your state. In fact, if he was threatening you with a lawsuit with no intention to follow though (because he can’t), he is violating the Fair Debt Collection Practices Act, a federal law that prohibits such threats. Tell him that you expect communication to end immediately. If he continues to call, send him a cease-and-desist letter. It should force him to drop the matter altogether.

Whatever you do, don’t discuss your debt or make a partial payment. Doing so can re-age the debt, which can restart the statute of limitations clock.

Next time, be absolutely sure to deal with any fees before closing an account and then walking away assuming all is well. You also now know your legal rights so you won’t get pressured into paying a noncollectible bill.

See related: Don't rush to pay very old debt in collections, 10 tips for dealing with debt collectors, collection

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Updated: 12-09-2018