Over-limit fees are fees imposed upon a credit holder when that individual or group exceeds the limit of their credit when credit card processing occurs. These fees are optional for consumers, but opting out has certain implications that the credit holders and merchant accounts should first understand.
How Does an Over-Limit Fee Work?
Imagine that a credit holder had a current balance of $480 on an account that maintained a limit of $500. The holder then conducted a $35 transaction, which would put them at $515 for that account.
Depending upon the company issuing the credit, a fee for going over that account’s limit may be imposed. This occurs as a way to both allow the credit holder to conduct their transaction and to compensate the company holding the credit to lend more money than previously authorized to the credit holder.
Credit companies tend to keep over-limit fees nominal when they occur infrequently. Companies will generally charge $25 to $35 for the first over-limit fee in a period of six months and $35 or more for each subsequent over-limit charge.
Consumers Can Opt Out of Over-Limit Fees
Over-limit fees for consumers have become increasingly infrequent since the Credit Card Accountability Responsibility and Disclosure Act of 2009 was passed.
The Credit CARD Act allowed consumers to opt out of over-limit fees. While this means that they cannot be charged during credit card processing when they opt out, credit cards that would be put over the limit will also be declined.
With regards to businesses, this is a double-edged sword. It can help a business significantly reduce the amount of fees that they incur, but it can also result in a large amount of confusion or shortages of items vital to day-to-day operations.
When Are Over-Limit Fees Advantageous for Businesses?
There are times when over-limit fees are relatively minor in comparison to the cost of not having certain items.
For example, consider a business that needs copier supplies. They cannot afford them, nor do they have a large enough balance on their account to purchase the supplies they need. This would result in a stand-still of operations until this problem was solved.
With merchant accounts that charge over-limit fees, that business may be able to continue their daily operations for a cost that is slightly higher than they would otherwise. If this type of event occurs infrequently, then the business gains more by continuing smooth operations than they lose by paying extra over-limit fees.