Credit Card Overlimit Fees Taking a Hike?

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.

Comments

  1. This isn’t about the over-the-limit fees, but I thought I’d ask and see if anybody has information that might help us since it is related to credit cards.

    We finally got all of our credit card debt moved to one card which we have had for 10 years. They have now informed us that our minimum payment will increase starting next month to an amount that is 50% more what it was before. We’re talking hundreds of dollars more a month. This is creating a hardship in our finances. We are trying to get out of debt, but we have to be able to pay for our housing, food, etc also.

    Do we have any options, here? Is it possible to talk them down on the amount or is there some kind of an ‘out’ on this, legally? We were going to try to refinance our house but now aren’t sure we can even pay the fees involved in doing that.

    Any advice would be greatly appreciated! Sorry for hijacking the topic a bit!

  2. @Jodi: What you are experiencing is common practice these days. Card issuers are raising the percentage of balance due for minimum payments (often from 2% to 3%, or higher).

    If you were given advanced notice you may be able to “opt out” of the change in terms by closing your account and paying down the balance under the prior terms (lower minimum payment).

    Contact your issuer’s customer service number for more information. And don’t delay; the window to opt out is usually short and if you miss the window you’re stuck with the new terms.

  3. “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 when people get to the point of being maxed out, $39 is a small price to pay for additional spending ability. It’s sad that the tighter the situation, the more the borrower pays for everything. That’s kind of the nature of sub prime, which is in effect what you become when you’re maxed out.

    Of course what isn’t helping right now is that a lot of banks are cutting credit lines, maxing customers out by default. I guess we’re all sub prime now…

  4. All comes down to responsibility. You shouldn’t even let yourself get in that situation to begin with. Credit card companies make so much money on interest rates and over draft, and they will continue to unless you become more responsible and don’t go over the limit.

    • Craigs comment reminds me of a guy i know that is always saying stuff like that.

      This guy never buys anyone a pint down the pub either!!

  5. Visa Signature cards apparently act differently. I went overlimit about a year ago on my Chase Freedom card. The additional transactions were approved and I was NOT charged an overlimit fee. Apparently this has something to do with the “no pre-set spending limit” deal on Visa Signature cards.

    -Erica

    P.S. Jodi, you should try to get a loan through Lending Club. Frugal Dad can email you a link.

  6. #5 Craig, You are right, you also sound condasending, not helpful.
    I would sugest line up another line of credit, with a different company, do the research to find out who owns who so as not to just use a different branch of the same, if you can, call the one you have, try to get it changed, if they won’t, tell them you will be closing your account with them for that reason, and do it, then tell everyone you know not to bank with them.
    Erica, very useful

  7. well captial one just charged me GBP 12.00 for being GBP 4.00 over my limit. GBP 3.00 of that was a cash advance fee and the remaining pound was a result of them recently pushing up their interest rates!! I do agree with the comments about knowing what to expect if you ride near your limit but i was just about to go over it again because i didnt know about the last fee being added as my current statement hadnt been issued.

  8. I’m about to fire Chase Cards for unilaterally taking away my entire spending limit. I need a high spending limit in case I have to travel on short notice due to an overseas family emergency. It doesn’t happen often, but when it does, it’s an emergency. I need to react, and generally the appropriate reaction requires more than what’s stashed in cash reserve (or available via ATM). Stewing for three days waiting for money to be transfered out of the money market or stock to be liquidated, or waiting for the banks to open the next business day, is not an option. So the next best thing to walking around with several thousand dollars in cash 24×7 (instead of having that cash draw interest) is access to emergency credit.

    Anyhow, I had one such credit card and to keep it active I used it for gas, utilities, phone, and groceries. After several years of this I just got a notice saying that the “spending limit” represented the maximum balance a person could carry, but that the issuer reserved the right to refuse any charge at any time for any reason.

    Although I never carry a balance I’ve had my card frozen twice so far this year for “suspicious” but normal purchases. Since when is a regular scheduled monthly phone payment OK for three years but suddenly “suspicious” when it falls on the same day as a gasoline purchase?

    Calling the customer service line and telling them never to freeze my account again had no effect: they explained they were trying to “protect” me. Baloney: humiliating me at the gas station or freezing my access to capital while I’m traveling out of town is not “protection”. It’s the exact opposite. They’re trying to avoid holding up their end of the contract.

    Since the only reason to have a credit card in the first place is to have access to reliable payment without carrying cash, the fact Citi just declared itself unwilling to honor purchases reliably means that they rendered themselves useless. I mean, even more useless than they were before and that’s saying something.

    They just haven’t been the same since the bailout. Of course, when you can forcibly gouge millions or billions out of the taxpayers by paying off the right lobbyists, there’s no further need for customer accountability. Or customers.

  9. Unfortunately, it’s not just people that are close to their limits that are affected by this.

    Credit cards can, of course, choose to lower a person’s credit line whenever they’d like. In fact, as I found out, they can also lower your limit below your actual balance. The following month, if you don’t pay down more than the difference, you get slammed with the penalty.

    Of course, the simple solution would be to pay the difference. Of course, the credit card companies also rely on the fact that they don’t need to give you any special notification that your credit line changes on any whim and you don’t inspect the line itself every single month.

    It’s a dirty trick. Nickle and diming people out of a $39 fee, though, adds up on a large scale.

  10. Okay, I have a question regarding the “overlimit” fees. I have a credit card that was under the limit (only $11 under the credit limit, but still UNDER the credit limit) and thus was charged an “overlimit” fee of #35, (again, even though my credit limit was NOT over the limit)…however this “fee” then took my balance over the limit (because of the “overlimit fee”. This does NOT seem legal and I am outraged. I know that I need to pay off the whole balance and plan to do so asap, but again, I was NOT over the limit and am really angry and frustrated with this charge when I made sure I was NOT over the limit.

    Advice??

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