Your Credit Card Limit Can Be Reduced Below Your Current Balance

We’ve seen how available balances can disappear when lenders cut credit card limits, but SmartMoney points out that lenders can cut your limit below your current balance, causing all sorts of problems. They’ll send you a notice, of course, but you may not receive it for several weeks. Your best bet is to set up your own alert system. A web-based financial service (like Mint) will send you an email or SMS alert if your available balance drops below a specified threshold.

Is cutting your limit below your balance really legal, you ask? Why, yes!

Nasty as it may be, the practice of cutting credit lines below the balance is legal — at least, for now, says Chi Chi Wu, a staff attorney for the National Consumer Law Center, a consumer advocacy group. Federal Reserve rules requiring lenders to give cardholders 45 days notice before reducing a credit line to the point that it would trigger penalties won’t go into effect until July 2010. “[Until] then, there are no federal protections,” says Wu.

One of the stories in the article describes how a man who owed $359.99 on an account with an $8,640 credit limit saw his limit cut to $300 without warning. To make things worse, HSBC slapped a $35 over-limit fee on his account. He contacted HSBC and got them to “waive” the over-limit fee, so be sure to contact your bank to complain if an unannounced credit limit reduction triggers unanticipated fees.

“How to Blow Your Credit Limit — Without Spending” [SmartMoney] (Thanks to Dragonfire1981!)
(Photos: jenlight, Andres Rueda)

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  1. plutonyum says:

    That is a dirty trick. Don’t see how it’s legal. I guess an event to occur before people see a need to outlaw, but man, that’s just shady. Defies common sense.

  2. pecan 3.14159265 says:

    Any idea as to how to get them to increase the credit limit if they suddenly reduce it? That’s what I’m more concerned about.

    • Anonymous says:

      @pecan 3.14159265: Just recently, I got a letter from BofA letting me know that my $26,000 credit limit had been reduced to $18,000. Luckily, I had zero balance on the card. I called today to ask if that could be reversed, raising my limit back up because I intended to transfer a balance taking advantage of their 1.99% offer, but instead, Nancy Cyr (the rep) let me know she was closing my account! Problem is – I am looking for a house, and this sudden closure so close to my asking for a mortgage could have a very negative impact on my potential mortgage rate. My credit score was between 770-780 before this. I hope this doesn’t hurt too much. I spoke with three others at BofA after Ms. Cyr closed my account; no one would do anything. Goodbye, BofA.

  3. LegoMan322 says:

    WaMu did this nonsense to me. I didn’t find out for a few months when my card was denied trying to make a large purchase.

  4. pecan 3.14159265 says:

    I’d say to anyone worried about this that they should log into their credit card account at least every few days to make sure their line hasn’t dropped. Mine hasn’t (yet)…here’s knocking on wood that it doesn’t.

  5. Anonymous says:

    The same thing happened to me in 2002 with Discover. I did try to contact them and ask for a waiver of the over limit fee, which they refused saying ‘there is nothing that we can do about it’. Needless to say, those weasels will never get another dime from me no matter what they offer.

  6. burnedout says:

    When AmEx cut my limit from no limit to just above the balance I called to see if that could be changed. The CSR was not helpful at all and when I asked for a manager she started sobbing on the phone and said nothing could be done – apparently AmEx dropped HER limit to below the balance and they wouldn’t even help her. She gave me the whole story about how she didn’t know how she’d pay all the fees…and then she said I should consider myself lucky and hung up on me.

    • theblackdog says:

      @burnedout: Oh that sucks for her.

      If AmEx were to do that to me, they might as well just cancel my card outright because the most I have charged is $160, and I paid that off before the months was over.

    • Corporate_guy says:

      @burnedout: Sounds like that employee found a great way to get people off the phone. Claim you had the same problem. You got scammed.

    • usa_gatekeeper says:

      @burnedout: RE “from no limit to just above the balance…” Was this an AMEX green card??

  7. nocar says:

    I’ve always found the telephone customer support folks to be very helpful in reducing fees or interest rates. I always pay on time but the few times my bill has arrived late I’ve always easily had the penalty removed with a quick phone call. When they ask “is there any other way we can help you today?” I’ve had my interest rate reduced (not that the rate makes a difference if you pay in full).

  8. pecan 3.14159265 says:

    burnedout: Is that a new tactic? I mean, CSRs are people too so I’m sure the story is possible, but I’ve never had a CSR break down and cry on the phone.

    I’m pretty sure there’s always something can be done…I mean, no one who normally uses $1,000 on their credit card can suddenly use $300. I, like others, use credit cards for everything as a method of tracking spending and accruing cash reward points.

  9. pecan 3.14159265 says:

    solareclipse2: …did you want to say something?

  10. Collie says:

    It boggle my mind why people still would use a credit card, especially from the big names in the business (CapitalOne, HSBC, Citi, BofA, American Express). Everyday there is a post about how they are giving their “customers” the old red hot poker up the you know where. But we have an instance where sears would not replace a rusty socket and everyone vows to never shop there again, but how could I cancel my credit card. If you must have a credit card, get one from your local bank, or better yet don’t use the damn thing and you will not have to worry about late fees, annual fees, over limit fees, ATM surcharges, insane interest rates (17.9% you can probably get a better rate from the bookie down the street), and all the other dirty tricks.

    • Eyebrows McGee (now with double the baby!) says:

      @Collie: Because a debit card is directly linked to my account and doesn’t offer the protections a credit card does, that’s why. (And my credit union — might as well ask, “why are you still using a bank?” in return to your “why are you still using a credit card?” — only issues debit cards.) Not everywhere takes checks and I honestly haven’t carried cash in about 12 years. I don’t have an ATM card (another security risk, I hate those things).

      And no, the bookie down the street charges more than 17.9% interest. As do the six payday loan places.

    • floraposte says:

      @Collie: Because it saves me hundreds of dollars per year. I like hundreds of dollars.

      It doesn’t have to cost you.

    • bilge says:

      @Collie: You don’t seem to understand how to best use a credit card. Get a card with no annual fee and pay off your balance each month and you essentially have the privilege of using someone else’s money for 30 days (or whatever your grace period is). And that’s good for when something like this happens: [consumerist.com]

      • Collie says:

        So let me get this straight, I am going to borrow someone their money for 30 days, and then pay it off? Why not use my own money and by what I need and not have to worry about it? I don’t give a shit what the rest of you do, but everyone on this site jumps all over ______ (fill in the blank) for screwing the customer, but not the credit card companies, you people are all hypocrites.

        I know how to use a credit card asswipe, I have one from my local credit union where they know me as a human being, not some part of group that can have their limit reduced for no reason (thanks HSBC, or jack my rate from 7.9 to 17.99, thanks CapitalOne) They obviously do not value you as a customer, so why do you value them? They make their money off the merchants you buy stuff from, who in turn passes that cost on to every customer in higher prices.

        • fs2k2isfun says:

          @Collie:

          Keep in mind, although these stories are more frequent, there are millions of credit card accounts out there, the vast majority without issues. I use a credit card (with an annual fee) because it gives me benefits I can actually use, and at a much better rate than a standard cash back no annual fee card. I’m 21, a student, with spotless credit, 6 credit cards, never a late payment or payment that wasn’t in full.

          Credit cards let me travel in business class to Asia for free, stay in some of the top hotels for free, and provide extra benefits like rental car insurance.

          Thats why I put up with their “crap”.

        • floraposte says:

          @Collie: There’s plenty of jumping all over the credit card companies here. There is also good information about how to use credit to your financial advantage. There’s no company in any field that positively, absolutely won’t screw you, after all, so it’s not like being an informed consumer means finding the angel companies and dealing only with them. (I too bank at a credit union, and they’ve been pretty disadvantageous at times.)

          If your method works for you, then that’s great–nobody’s telling you you have to change. But I don’t care whether the CC issuers think well or ill of me; as long as it’s financially profitable for me to use their product, and it currently is, it makes sense for me to do so. When it becomes financially unprofitable, I’ll reconsider.

          Credit cards can be a useful and money-saving tool with risks comparable to other methods of spending and benefits that are greater. It’s not a foolish thing to choose them, even if it’s not what you want to do.

  11. rellog321 says:

    My question then is…
    Can we refuse the change in terms and close the account without penalties in over the limit fees

  12. rpm773 says:

    If this happened to me, I’d pay off the balance and close out the account as soon as possible. Granted, the card company sees me a as a risk and wants to dump me, which is why this happened. But if I stick around, the chances are good that worse shit will happen.

    This is the credit card equivalent of going to a party where nobody likes you, and as a result someone dumps beer on you by “accident”. If you don’t take the hint and leave, worse things could happen to you later. Might as well split.

  13. LiC says:

    My credit card was cut to $1100 at some point during my billing cycle. When the statement closed and my interest fees were applied, that put me over the limit by about $20. I got hit with the over the limit fee, but I just lowered my balance and they reversed the fee.

  14. pecan 3.14159265 says:

    Collie: Ditto Eyebrows McGee. Credit cards are a tool, just like debit cards. But credit cards offer more protection, and you just can’t guarantee that kind of protection with a debit card. If someone stole my credit card, I could at least call and report it as stolen, and I’m not responsible. And the money isn’t gone because a credit card isn’t money to begin with. If my debit card gets stolen – guess what? Money is gone. And if the card gets used the next county over, I’m going to have a heck of a battle with the bank if they decide they don’t want to believe that it didn’t get stolen.

    I don’t ever worry about APRs and late fees – I’m one of those people who pays it off. But aside from that, credit cards have been my main source of spending for the last 4 years. I track my spending, I am responsible with it, and I pay my bill the day the statement is ready.

    And what’s the point of having a credit card from the local bank? What’s a “local” bank anyhow? Joe’s Bank from down the street? What protection does that offer you when you’re traveling and your card gets rejected? MOST credit cards are from major banks or credit card companies such as American Express. There’s more trouble than it is worth when you want to go with a card from a truly local bank.

  15. techstar25 says:

    I had a Home Depot credit card, with a $1000 limit. I was carrying a balance of about $375 on it while I purchased new flooring. I got about halfway through buying all the flooring I needed, when they dropped my limit to $400, just a few bucks above my balance. Sure, I didn’t go over the limit, but I never finished buying all the wood laminate that I needed, and now, in my hallway I’m walking on bare cement (I had already pulled up the old carpet). Screw them. I’ll never shop at Home Depot again.

  16. Heresy Of Truth says:

    They did this to one of our credit cards. We have never been late, paying early even. They cut the balance in half, leaving us over. We didn’t get hit with overage fees, but we weren’t too happy about it.

    We were paying off the higher interest card first, but this one is now a top priority. As soon as it’s paid off, it’s getting closed no matter what closing it does to our credit.

    • acwatts says:

      @Heresy Of Truth: We have never been late, paying early even.

      I think that what they are looking at is your debt to income ratio, not payment history. With so many jobs going away they are wanting to figure out who is most likely to cause them a loss if a job is lost – you probably have a pretty high income and some pretty high bills. They are afraid that if your income goes away you may not be able to pay. If you have a low debt to income ratio they figure that you are more likely to be able to hang in there (alteast not file BK) if you end up out of work.

      • Heresy Of Truth says:

        @acwatts:

        We have a pretty high income, and very low bills, actually. Our income is not going away. I’m a nurse, and he works for the state in a position that will not ever be cut. We’d have to be devolved to a post apocalyptic anarchy for that to happy.

        We have suspected that they cut us because we pay too well. We had a recent batch of medical bills in the last two years. That card would have been paid off in two months anyways due to the massive payments we put on it. They don’t make much in carry over interest from us, and we don’t tend to use the card except in this one emergency instance.

        Of course, I could be really misreading the situation, but I’m still closing the damn thing no matter what the reason.

    • du2vye says:

      The reason the credit card gave me for reducing my limit? “No open real estate accounts”. Yes, I own my own home. There’s no risk of foreclosure.

      And this was a bail-out bank too.

  17. shepd says:

    Credit cards are always issued as demand accounts. For those of you who have taken accounting, that means the creditor has the right to demand payment immediately. Now, credit cards have their own set of regulations that limit the actual immediacy of the request, but the threat has always loomed.

    Most of your bank accounts are also demand accounts, which is why you can walk into a bank with a suitcase and expect it to be filled with whatever money you may have in the account. If the bank doesn’t have it on hand, they are required to figure out a method to get it to you ASAP (such as having you travel around their various branches to get your money in bits and pieces, as I have had to do previously).

    Now, the danger of recalling a debt quickly like that is that the debtor can fail. If it’s a person, they can declare personal bankruptcy pretty easily once they can prove you want several times their monthly wage instantly. For banks, well, we all know what happens in a bank run. So, normally, they wouldn’t ask for all your money like that (unless they somehow knew you could pay it and they for some weird reason didn’t want their interest).

    • sirwired says:

      @shepd: What is your source for this? I know that they have always been able to demand payment of the entire balance if you go delinquent, but I have never seen that they can demand payment of the whole balance “just because.”

      • shepd says:

        @sirwired:

        I know it’s not an approved internet source ™ :) but my source would be my accounting professor from college. I may not be retelling everything exactly, but I do specifically recall that credit card debts can be called in at any time.

        Special note: I am in Canada. The US operates differently and has more consumer protection laws on Credit Cards than we do, so there are certainly limits on just how much a credit card company in the US can outright demand instantly. But I bet they’re more time limits than money limits.

  18. richcreamerybutter says:

    OK, so the APR increase thingy also happened to me recently. Basically they say, “sucks to be you…doing nothing means you bend over and graciously accept the APR increase. Now, we’re not FORCING you to accept, but if you choose to decline the increased APR, you will not be eligible to make new purchases.”

    Assuming it’s bad form to just pay off the balance and outright cancel the thing, what do you do to preserve the almighty credit report (if I choose to care – I’m probably just going to pay the balance and cancel)? How would one who is normally concerned about this sort of thing maintain the status quo without having to be charged extra?

    Why am I required to pay extra for what some consider to be basic background information, not unlike a SSN or fingerprint?

  19. Anonymous says:

    This happened to me by US Bank (who is highly evil and nobody should ever do business with, as exemplified here). I had a student credit card with a $1,200 limit and $900 balance. As I was in school and didn’t have a job, I couldn’t just clear off the balance, but I was making at least minimum payments.

    All of a sudden, without any warning, they dropped my limit to $800 and hit me with a $35 over-limit fee. Of course them not telling me this (and with little activity on the card), I don’t keep an eye on it. And they’ve got some rule where if you’re over limit for more than 7 days, they start pounding you in the face with more $35 fees.

    All in all, US Bank robbed me of over $300 on that occasion. There were many others.

    Do NOT do business with US Bank.

  20. augiet65 says:

    He was going to say something but Consumerist cut his word limit without notice.

  21. HogwartsAlum says:

    Maybe I can wait til AFTER the law goes into effect to get a card.

  22. David Brodbeck says:

    @richcreamybutter: Why am I required to pay extra for what some consider to be basic background information, not unlike a SSN or fingerprint?

    Last time I had my fingerprints taken I had to pay for the privilege.

    From what I hear if you already have good credit, canceling a card isn’t likely to ding you too badly. But of course no one really knows for sure; the FICO score formula is a trade secret.

  23. Sunflower1970 says:

    I check my cards every few days (BoA & AmEx) and so far so good my limits are still the same. Never been late, never missed a payment, etc, etc. So, *knock on wood* I’m really hoping everything stays good until next year when the CC rules go into effect….

  24. pecan 3.14159265 says:

    I just got another credit card…after haggling with Capital One as to why after more than 6 years of doing business with them and never missing payments, they’ve still not increased my credit limit (I’ve had it since high school), I’ve decided never to use the card again…it’s also the fact that it’s not a rewards card of any kind, and they also wouldn’t let me switch without going through a lot of “paperwork” which entails telling a CSR my SSN and all the information I could easily do online…except there doesn’t seem to be a method of changing card types online. Grr.

    So I said good riddance after I hung up the phone, stored the card away and signed up with AmEx.

  25. DeadWriter says:

    This almost happened to me! I had just paid off a big chunk and they cut it half.

    I call every three months or so to make sure that my credit limit is low, no high. All too often my credit limit is raised, beyond what I want to have access to, but this time was the opposite.

    If I hadn’t used online banking, I would not have known for a few weeks. I still haven’t received the letter informing me of the decrease in my credit limit.

  26. Subsound says:

    That’s bull, they need to inform you if they drop your limit under your balance before it’s been done. It’s just a way to generate extra fees from a customer, and ruins their service reputation that the customer they screwed over will never be a customer of their business again. I don’t mind if they drop it, but this is just a cheap shot.

  27. pecan 3.14159265 says:

    DeadWriter: why should it matter that your credit limit is raised? That’s not a bad thing because you’re not actually going to use all $20,000 of a credit line, but your debt to credit ratio is low.

  28. Doreen DelPurgatorio says:

    “says Chi Chi Wu, a staff attorney for the National Consumer Law Center….”

    TELL ME that is not a contestant on RuPaul’s Drag Race….

  29. Urgleglurk says:

    We currently don’t have any CC’s because of crap like this. If we ever do decide to get one again, it will be with a small local bank.

  30. pecan 3.14159265 says:

    Collie: How about we not resort to name calling? No one was insulting toward you.

  31. bilge says:

    Ok, lets say we buy the same TV. You use cash and get a TV. I use a credit card and I get the TV with a free extended warranty and whatever my credit card’s reward program offers–I’ve gotten more bang for my buck. Why do I value Citibank? Because they provide me with a credit card which, because I use it responsibly, doesn’t cost me a cent and provides me with additional benefits such as purchase protection.

    If you don’t give a shit what we do, why not go buy a cookie (I’d use a credit card, personally) before your blood sugar drops any more and then take a nap before you tire yourself out or piss your pants. You’re a little worked up so maybe it’s too late for your pants.

  32. kwsventures says:

    Take it as a favor. You need less credit card debt not more. If your limit is lowered, you can expand your credit card debt.

    • the_wiggle says:

      @kwsventures: this asshattery is so NOT NOT NOT! a favor. it’s screwing with someone’s credit which can & does often screw them out of a job in this credit score obsessed world. a particularly heinous in this layoff happy economy.

  33. ionerox says:

    I don’t know if I’m just the luckiest girl in the world, or if the banks see me as a cash cow- but Citi keeps raising my limit and offering very, very low interest rates to transfer other debt to them.

    Is this happening to anyone else? Will they just turn around and cut my limit down on a month or two?

  34. Adhominem says:

    @Collie:

    You’re completely missing the point. I use a credit card because as a college student with perpetually under $1000 in my checking account. I fill up on gas twice a week to commute to school. I buy lunch at school. I’d be completely screwed if Greyhound or Target charged me $800-$1000 and froze that money for a week.

    Credit cards afford some measure of protection for me. I pay my bill on time every month and I am careful to never carry a balance. I earn 3% cash back and Chase has never made any money off me.

    It’s really a double edged sword. If you don’t trust yourself to use a credit card responsibly then by all means go all cash. But for those that are financially disciplined, it can be an asset.

  35. PLATTWORX says:

    Funny they should mention HSBC above. I had a Best Buy card through them with a $3000 limit I had not used in a while. After making a $550 purchase on the card (that went through without trouble) I learned when signing into my account online that I was $250 OVER my new $300 credit limit! They never told me they reduced it and so far have not hit me with any “over limit” fees so I am watching this carefully.

  36. burnedout says:

    @ usa_gatekeeper: No, it was the One Card…

  37. burnedout says:

    Corporate_guy: I don’t mean she was teary. I mean she broke down sobbing. It’s hard to fake that, but I guess it’s possible. I did call back several times and talked to many different CSRs and managers and the executive CSR people (I don’t remember their actual titles), and they wouldn’t do anything. I just wonder how regular people stand a chance if their own employees are treated like garbage (assuming she wasn’t faking)

  38. the_wiggle says:

    banks pull this BS on overdraft lines of credit too.

  39. the_wiggle says:

    @Corporate_guy: don’t be too sure of that. the nameless bank i work for exempted absolutely no one – including employees. didn’t renegotiate for anyone either – especially employees.