DEFINITION of 'Over-Limit Fee'

Over-limit fee is a penalty charged by a credit card company if a credit card user exceeds the card’s credit limit. Over-limit fees are typically $25 for the first over-limit charge and $35 for subsequent over-limit charges, though credit card issuers are free to determine their own fees as long as they are reasonable in relation to the cardholder’s over-limit activity.

BREAKING DOWN 'Over-Limit Fee'

Some card issuers do not charge over-limit fees, and those that do must allow cardholders to opt out of paying them. If a cardholder opts out of over-limit fees, the card will be declined if it does not have enough available credit to complete the purchase, unless the card issuer allows over-limit charges with no over-limit fee.

Over-limit fees have become less common since the passage of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act). However, while the decrease in over-limit fees is correlated with the act’s passage, it is unknown precisely if the act directly caused the decrease. What is known is that the law required creditors to allow consumers to opt out of paying over-limit fees. Opting out means not only that they will not pay over-limit fees, but also that they will not be able to spend beyond their credit limit, which limits how much debt they can get into – at least with a particular card. If they opt in, the over-limit fee cannot be higher than the amount by which they exceed their credit limit.

How Over-Limit Fees Affect Consumers

When credit card issuers more regularly charged over-limit fees, it provided auxiliary form of revenue for the companies as consumers were allowed to overspend and incur these fees. Sometimes consumers would suffer these penalties on a recurring basis if they did not maintain close watch on their spending habits. This practice changed with the passage of the Credit CARD Act.

Suppose a consumer has opted in to over-limit fees and they have a credit limit of $5,000. Their current balance is $4,980, leaving $20 in available credit. They use the card to buy dinner, which costs $42 and increases the balance to $5,022. They have gone over the limit by $22; the most the credit card company can charge them in over-limit fees is $22. What if dinner cost $102? In this case, the balance would increase to $5,082, and they would exceed the credit limit by $82. If they have not had an over-limit charge in the last six months, the credit card issuer will probably charge them a $25 over-limit fee. If they have already gone over the limit at least once in the last six months, the fee will probably be $35.

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