When I worked in a credit card customer service call center a decade ago I bet I took a dozen calls a day related to overlimit fees being charged to cardholders’ accounts. I was of course trained to toe the company line, explaining that fees were well documented in our terms and disclosures, and by using the card customers agreed to those terms. Inside I always felt a little dirty.
Ultimately, I decided to leave the industry altogether for a variety of reasons, not just because the companies I represented charged fees. But one that always got me was the overlimit fee. To me, overlimit fees were an interesting example of human behavior mixed with strange business practices.
On the surface, you would think a $39 fee would be enough of a deterrent to keep people from charging above their credit line. Unfortunately, that is not the case, but it is not the whole story either. Credit card companies are nice enough to include an “authorization pad” (usually a few hundred dollars) so charges in excess of your available credit may be approved by merchants. Nice service, huh?
It would be a nice service if they didn’t follow up their generosity with an overlimit fee. Theoretically, a $10 purchase that barely puts you over the credit limit could cost you $49 thanks to the additional fee.
Why don’t credit cards decline transactions in excess of the available credit? Their answer (spin) is usually something like, “We are saving customers the embarrassment of being declined.” Gee thanks. And what a bargain! The real truth is they allow the charge to go through so they can charge overlimit fees.
That practice may not be happening for long though. As this Consumerist post points out, Amex and Discover have already ditched overlimit fees. Before you feel too sorry for Amex or Discover (yeah right), realize that this loss of income will be made up elsewhere – probably by reducing reward program benefits, and increasing rates.
This move to get rid of overlimit fees can be credited mostly to the CARD Act passed in the spring. When enacted, the CARD Act will require issuers to “opt in” to the feature of being able to exceed their credit limit, and be subject to a fee. That involves a lot of maintenance to cardholders’ accounts, so Amex and Discover decided it wasn’t worth the hassle. I’d expect other issuers to follow suit, except the subprime credit card issuers who would tack on a fee for being charged a fee if they could.
Any worries over credit card overlimit fees can be ignored if you simply decide not to spend on a credit card, particularly one that is nearing its credit limit. Charging in excess of your credit limit is the financial equivalent of spending more than is available in your checking account, and both actions may result in nasty fees.