On February 22, 2010, the CARD Act goes into effect. And while many of the CARD Act provisions are worthless or even disadvantageous to consumers, there is at least one new rule that is certainly welcome. Credit card issuers will not be able to approve any transaction that puts a cardholder in an over-limit position and, therefore, won't be able to charge them an over-limit fee.
Over-limit fees generate hundreds of millions of dollars in fee income for the credit card issuers, which is why the industry had a meltdown when there were rumors of implementing the CARD Act provisions on December 1, 2009, rather than February 22, 2010. A December 2009 date would have meant issuers would have missed out on all of the holiday shopping and the millions of transactions that resulted in over-limit fees. Regardless, that income stream is coming largely to an end.
Bank of America has already sent out letters to their cardholders informing them that "You will not be charged a fee for going over your credit limit." Their decision to simply forego this income stream is a little like throwing in the towel without at least answering the final round bell. There is a way around the over limit fee restrictions, but it isn't simple.
Credit card issuers can still charge over-limit fees, but they have to convince their cardholder base to "opt in" and allow for the approval of a transaction that results in an over-limit balance. And while this might sound simple, almost more desirable (who wants to get declined at the register or in a restaurant in front of family or friends?), the reality is that the process of convincing tens of millions of your cardholders to opt in and allow for over-limit fees is simply impossible to accomplish.
Credit card issuers have a couple of choices on this matter. They can simply forget about over-limit fees and replace the lost revenue with another fee; they can allow new cardholders to opt in when the account is being opened; or they can attempt a mass opt-in campaign with statement stuffers, phone calls, or emails. This all sounds terribly expensive and not terribly effective. Thank you, CARD Act!
John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.