What is a Credit Card Over Limit Fee?
Your credit limit is an important number to know. It's the maximum amount of credit the credit card issuer has made available to you. In some cases, the credit card issuer won't stop you from going over your credit limit. Instead, they'll charge a fee - an over-the-limit fee when your credit card balance exceeds your credit limit regardless of whether purchases, fees, or finance charges have pushed you over the limit.
The over-the-limit or credit limit fee typically only applies to credit cards that have a credit limit. Credit cards with no preset spending limit don't have an over-the-limit fee.
Changes to Over-the-Limit Fees
In the early 2000s, over limit fees were a huge problem for consumers. Once a credit card balance was over the limit, many credit card issuers would charge a new fee each month the balance was not brought over the limit. If the cardholder paid the minimum amount necessary to bring the balance to just below the credit limit, finance charges would push the balance over the limit again and another fee would be charged. This cycle would repeat itself month after month making it more difficult for cardholders to bring their balances down and stop the fees.
When the Credit CARD Act was passed in 2009, abusive over limit fees were abolished. Credit card issuers could only charge over limit fees in certain circumstances and the number of fees that could be charged in consecutive billing cycles was capped. In the 2013 CARD Act report, the Consumer Financial Protection Bureau estimates that consumers saved $2.5 billion in over limit fees between the time the CARD Act became effective in February 2010 and the final quarter of 2012.
The Law on Over Limit Fees
Federal law prohibits credit card issuers from charging an over limit fee unless you've opted-in to have over-the-limit transactions processed. That means you have to give your expressed permission before you can be charged the fee. Otherwise, any transaction that would exceed your credit limit will be declined thereby allowing you to avoid the over limit fee.
If you've opted-in to have over limit transactions processed and you exceed your credit limit, you can only be charged an over-the-limit fee for two consecutive billing cycles if your balance remains over the limit. However, if you pay your balance down and it goes over the limit again or if you get a credit limit increase and exceed the new credit limit, your credit card issuer can charge another over-the-limit fee.
How Much is the Over Limit Fee?
After the government passed a law limiting the over limit fees that could be charged, many credit card issuers removed the fee altogether. This means you won't receive a penalty fee for going over your credit limit, whether you've opted-in or not.
The fee varies by credit card for those that do still charge it. The CARD Act suggests a maximum of $25 over limit fee for the first incident and a $35 fee for the second instance within six months. The credit card issuer is not allow to charge an over limit fee higher than the amount you exceeded your credit limit. Check your credit card agreement or the back of your credit card billing statement or call your credit card issuer to find out the over limit fee for your credit card.
While your goal should be to never exceed your credit limit, aim to choose a credit card that doesn't charge an over limit fee. That way, if you accidentally go over your credit limit, you won't face a big penalty for it.
You can complain to the CFPB if you believe your credit card issuer is not following the law regarding over limit fees.
Other Over Limit Penalties
Note that even though a credit card issuer may not charge an over limit fee, there may be other penalties for exceeding your credit limit. For example, the card issuer may raise your rate to the highest penalty rate or forfeit any rewards you've earned. Your credit card agreement will define the penalties of going over your credit limit.