Definition and Example of Credit Card Over-limit Fee
The credit card over-limit fee is a penalty charged when you exceed the maximum balance or credit limit on your credit card. The credit limit is the maximum balance that your credit issuer has granted you on your credit card. The credit card over-limit fee is a penalty imposed when the limit on your credit card is exceeded. You must agree to allow transactions that exceed the credit limit to be processed before an over-limit fee is charged. Federal law determines when credit card over-limit fees can be charged and how much they will cost you. Your credit card agreement will outline the penalties for exceeding the credit limit. If you believe an over-limit fee has been charged by mistake, you can dispute the charge with your credit card company.
How Do Credit Card Over-limit Fees Work?
Federal law prohibits credit card issuers from charging over-limit fees unless you choose to have transactions that exceed the credit limit processed. This means you must give your consent before the fees are charged. If you do not choose to allow transactions that exceed the credit limit, any purchase that exceeds your credit limit will be declined. In these cases, you will avoid any fees or penalties for exceeding the maximum balance.
Notable Events
In the early 2000s, predatory over-limit fees were a problem for consumers. Once a credit card balance surpassed the credit limit, many credit card issuers would impose new fees every month that the balance wasn’t reduced below the credit limit. If the cardholder paid the minimum amount necessary to bring the balance below the credit limit, interest charges would push the balance back over the limit resulting in additional fees. This cycle would repeat month after month, making it difficult for cardholders to reduce their balances and stop the fees. When the CARD Act was passed in 2009, one of the changes it made was to eliminate abusive over-limit fees. Credit card issuers could only charge over-limit fees in certain cases, and the number of fees that can be charged was limited in consecutive billing cycles.
How Much Is a Credit Card Over-limit Fee?
After the CARD Act was passed, many credit card issuers completely eliminated over-limit fees. This means you won’t receive a penalty fee for exceeding the credit limit, whether you chose to allow it or not. Fees vary by the credit card that still imposes them. The CARD Act recommends an over-limit fee of no more than $25 for the first occurrence and $35 for a second occurrence within six months. A credit card issuer is not allowed to charge over-limit fees that exceed the amount you went over the limit. Check your credit card agreement or the back of your billing statement, or contact your credit card issuer to find out the over-limit fee for your card.
Alternatives to Credit Card Over-limit Fees
Even if your credit card issuer does not charge an over-limit fee, there may still be other penalties for exceeding the limit. Your credit card issuer may raise your interest rate to a higher penalty rate. You may lose any rewards you have accrued. Your credit card agreement will specify penalties for exceeding the credit limit. Whether your credit card issuer charges an over-limit fee or imposes another type of penalty, exceeding your credit limit can be costly. It can also lead to a drop in your credit score. The best way to avoid over-limit fees or any other penalties is to monitor your spending and stay within your credit limit, paying off your credit card balance each month. If you believe an over-limit fee has been charged by mistake, you can dispute the charge with your credit card company. If they refuse to remove it, or if you believe they are not compliant with the law regarding over-limit fees, you can report to the Consumer Financial Protection Bureau.
Source:
https://www.thebalancemoney.com/what-is-a-credit-card-over-limit-fee-960704
Leave a Reply