DEFINITION of over limit fees
An over limit fee is a penalty charged by a credit card company if a credit card user exceeds the card’s credit limit. The overage fee is usually $ 25 for the first overage fee and $ 35 if you exceed the limit a second time in the next six months, although credit card issuers are free to determine their own fees as long as that they are reasonable in relation to the activity of exceeding the limit of the card holder.
BREAKDOWN of over limit fees
Some card issuers do not charge an over-limit fee, and those who do so must allow cardholders to refuse to pay them. If a cardholder chooses not to exceed the limit overage fee, the card will be refused if there is not enough credit available to make a purchase, unless the card issuer authorizes an overage charge no overage fees.
Over-limit fees have become less common since the 2009 Credit Card Liability and Disclosure Act (also known as the CARD Act) was passed, although do not know if the law is directly responsible for this decrease. However, the law requires creditors to allow consumers to refuse to pay over-limit fees. Withdrawal means not only that cardholders will not pay fees above the limit, but also that they will not be able to spend beyond their credit limit, which limits the amount of debt in which they can s ‘indebted – at least with a particular card. If they opt, the over limit fees cannot be greater than the amount by which they exceed their credit limit.
How Over Limit Charges Affect Consumers
Before the enactment of the CARD Act, when credit card issuers charged over-limit fees more regularly, the practice provided an ancillary form of income for businesses. Sometimes consumers would experience these penalties repeatedly if they did not closely monitor their spending habits. Thanks to the CARD Act, this is happening less frequently now.
Here is an example of how the over limit fee works: let’s say a consumer has chosen to exceed the fee, has a credit limit of $ 5,000 and a current balance of $ 4,980, which leaves $ 20 of available credit. This consumer then uses the card to purchase dinner, which costs $ 42 and increases the balance to $ 5,022. The limit has been exceeded by $ 22, so the credit card company can charge a maximum of $ 22. If dinner costs $ 102, the balance will increase to $ 5,082, exceeding the credit limit of $ 82. If the consumer has not had an over limit charge in the past six months, the credit card issuer will likely charge an over charge of $ 25. If the cardholder has already exceeded the limit at least once in the past six months, the fee will likely be $ 35.