pyramiding late fees

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Latest post 10-18-2012 1:04 PM by karen2222. 4 replies.
  • 10-17-2012 5:06 PM

    pyramiding late fees

    Since paying off the last installment of a personal loan, the lender has sent a letter notifying me that there are aditional charges for $730.00. There is no explanation of what these additional charges are for.

    The contract called for a monthly payment, with a late fee of $30.00 assessed for a late payment. It says nothing about late fees accruing or being carried forward or compounding. I can only assume the lender has taken it upon himself to try to extract more $$ from me by assessing additional charges as some sort of "late fees" that may have accrued over the life of the loan. One check never cleared from about 18 months ago.

    I am learning about a term called "pyramiding fees" used in context with credit card accounts and it appears applicable to this situation. Would it be legal for the lender to charge this? If a payment was missed, then essentially the lender started removing the late fee of $30 from all future payments and deemed remaining payments as insufficient.

    He will take me to small claims court over this and I need to be prepared. I do not have funds to hire a lawyer, so I need to rep. myself.

     

    Thanks!

  • 10-17-2012 5:19 PM In reply to

    • DPH
      Consumer
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    Re: pyramiding late fees

    ncfarkel:
    Since paying off the last installment of a personal loan, the lender has sent a letter notifying me that there are aditional charges for $730.00. There is no explanation

    Then get them on the phone and get an explanation, in writing.  You might also get out your loan agreement and read it very carefully, especially the part on late fees if that's what you think this is all about.

    ncfarkel:
    Would it be legal for the lender to charge this?

    Read you agreement.  If something is included in your contract, then there's a chance it is legal unless it is in conflict with some sort of usury law(s). 

    ncfarkel:

    He will take me to small claims court over this and I need to be prepared. I do not have funds to hire a lawyer, so I need to rep. myself.

     

    Then you need to get clear on what you're being charged for so that you can try to figure out how to defend yourself.  SC court is informal and an attorney is not required, but you need to get up to speed as to why you might be getting sued.  If you determine that the charges are legitimate, might be cheaper to find the funds to pay them off then to try and defend.

     

     

    "Never argue with stupid people, they will drag you down to their level and then beat you with experience."  -  Mark Twain

     

  • 10-17-2012 5:34 PM In reply to

    Re: pyramiding late fees

    ncfarkel:
    The contract called for a monthly payment, with a late fee of $30.00 assessed for a late payment. It says nothing about late fees accruing or being carried forward or compounding.

    Doesn't have to.

    That's how interest works.

    If your monthly principle and interest payment is X dollars and the late charge is 30, if you pay X late without the 30 then the 30 gets added to the next payment and interest accrues on the new total. If you pay only the next payment of X without the 30 you still owe the previous and, worse, your current payment is late because X + 30 wasn't paid in full and generates another 30.

    If you had a payment that wasn't made 18 months ago (and you seem to know that's what happened) you could very easily be in the hole by 730.

     

    • The right of the people 
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  • 10-18-2012 12:02 PM In reply to

    Re: pyramiding late fees

    What does this have to do with family law?

     

    ncfarkel:
    I am learning about a term called "pyramiding fees" used in context with credit card accounts and it appears applicable to this situation. Would it be legal for the lender to charge this?

    You're asking us to address the legality of something of which you've heard but which you didn't explain to us.  That's not really possible, but let's consider the following hypothetical:  You have payments of $250 due each month on a $10k loan.  The loan contract provides for interest at the rate of 18% per annum on the unpaid balance.  It also provides for a $30 late fee.  Finally, it provides that any payments made are applied first to any outstanding late fees, then to accrued interest, with any remainder being applied to reduce the principal balance.  You make your first ten payments on time, which would leave you with a balance of a bit under $9k (we'll say $9k even to make the math easier).  Each monthly payment transaction will look something like this:

    <current principal balance> + (1/12 x 0.18 x <current principal balance>) - $250 = <new principal balance>

    In the case of the first monthly payment, it will be:  $10k + (1/12 x 0.18 x $10k = $150) - $250 = $9,900

    You are late by 15 days with your 11th monthly payment.  That months transaction will look like this:

    $9k + $30 + (1.5/12 x 0.18 x $9k) - $250 = $8,982.50

    Had you made a timely payment, the transaction would have looked like this:

    $9k + (1/12 x 0.18 x $9k) - $250 = $8,885

    As you can see, being late by only 15 days resulted in a your principal balance being reduced by only $17.50, whereas, had you been timely, it would have been reduced by $135.

    Maybe that illustrates what you're talking about.  If not, please clarify what you're talking about.

  • 10-18-2012 1:04 PM In reply to

    Re: pyramiding late fees

    ncfarkel:
    One check never cleared from about 18 months ago.

    That may mean they lost it, or it may mean they never got it.  Did you write a replacement check, including the $30 late fee, as soon as you found out they didn't credit your payment or redeem your check?

    ncfarkel:
    If a payment was missed, then essentially the lender started removing the late fee of $30 from all future payments and deemed remaining payments as insufficient.

    If a payment was missed, then the check you sent in for the next month was assumed to be for the missing month.  If you fail to pay January's payment but then pay the February and March and April payments on time - WITHOUT ever paying January's payment - then you will be late every one of those months.  It's one good reason to always balance your checkbook promptly and pay attention to checks that fail to clear in a reasonable amount of time.

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