What is Over-Limit Fee?
1355 reads · Last updated: December 5, 2024
An over-limit fee is a penalty charged by credit card companies when cardholders’ purchases exceed their credit limit. Previously, credit card companies would decline the transaction if the consumer made a purchase over their limit; however, credit card companies moved to a practice of allowing the transaction to go through but charging a fee. This practice has stopped since the passing of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act in 2009.
Definition
An over-limit fee is a penalty charged by credit card companies when cardholders make purchases that exceed their credit limit. This fee is incurred when a cardholder goes over their credit card limit.
Origin
The concept of over-limit fees emerged with the widespread use of credit cards. After the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 was passed, credit card companies were allowed to charge over-limit fees instead of outright rejecting transactions that exceeded the credit limit.
Categories and Features
Over-limit fees are typically a fixed amount, varying by credit card company. They allow cardholders to continue using their credit cards in emergencies but can also lead to additional financial burdens. Cardholders should be aware of the terms regarding over-limit fees in their credit card agreements.
Case Studies
Case 1: A cardholder purchased a new computer in an emergency, exceeding their credit limit. The credit card company allowed the transaction but charged a $35 over-limit fee. Case 2: Another cardholder made multiple purchases during the holidays, not realizing they exceeded their credit limit, resulting in multiple over-limit fees and a significantly increased bill.
Common Issues
Common issues for investors include how to avoid over-limit fees and whether these fees can be negotiated away. Cardholders can typically avoid over-limit fees by regularly checking their credit card balance and setting spending alerts. Additionally, it may be possible to negotiate the waiver of a first-time over-limit fee by communicating with the credit card company.
