Discover, American Express end fees for exceeding limit

By
Kathy Chu, USA TODAY
August 10, 2009, 9:34 PM ET
2 min read

— -- Discover Financial and American Express plan to stop charging fees when consumers spend past their credit card limits.

The move, reported by American Banker Monday, comes six months before a new law clamps down on such fees. The law doesn't require issuers to eliminate over-limit fees, but it will prohibit them from imposing these charges unless consumers say they want the ability to exceed their credit line.

These fees provide a significant boost to the industry's bottom line. In 2009, issuers are expected to reap $3.7 billion from over-limit fees on credit cards, up 16% from 2008, according to R.K. Hammer Investment Bankers. The firm says over-limit fees average $35.

It's unclear whether, and to what extent, other issuers will also eliminate over-limit fees. But Marc Hedlund, CEO of Wesabe, a personal-finance site, says consumers shouldn't rejoice just yet.

"Taking away these fees could mean that others will show up in their place," says Hedlund.

Indeed, amid the difficult economy, most issuers have either raised fees or interest rates for credit card borrowers. Many have done both, citing the difficult economy, high costs and consumers' increased riskiness.

American Express AXP says it began notifying consumers last week that it will do away with over-limit fees in October. At the same time, though, consumers were told that late fees for certain borrowers were rising. American Express also told some borrowers their purchase APR was going up — by an average of 4 percentage points — due to the "business and economic environment," says spokeswoman Desiree Fish.

Discover Financial DFS, meanwhile, says it will notify consumers "soon" that it will no longer charge over-limit fees.

Analysts say over-limit fees don't make up a huge part of American Express' and Discover's revenue, which may explain why they're willing to eliminate them. Other issuers, however, may not be so eager to ax over-limit fees.

These charges are a "meaningful component" of Capital One's fee income, says a June 2009 report from researcher Keefe Bruyette & Woods. Capital One spokeswoman Pam Girardo says the company will "ensure we're in compliance when the new law goes into effect," but hasn't changed its over-limit policy.

Wells Fargo, Chase, HSBC and Citigroup also say they haven't altered their over-limit policies, under which consumers may be allowed to spend beyond their credit line and charged a fee.