American Express and Discover will no longer bill customers who exceed their credit limits, according to company spokespeople. The creditors aren’t eliminating the fees because they care about their customers. No, they’re providing what American Banker calls “the first concrete examples of how a new law will restrict issuers’ abilities to turn a profit.” The new CARD Act that Congress passed in May requires consumers to opt-in before they can exceed their credit limits. Since overlimit fees, which can reach $39, aren’t very profitable for creditors, they decided to ditch the fees altogether.
“Issuers should take overlimit fee income out of their P&Ls (Ed: profits and losses),” said Philip J. Philliou, a former Amex executive and a partner in the Philliou Selwanes Partners LLC consulting firm. “Under the best of circumstances, it’s a much more limited income stream than in years past, and this additional hurdle of assessing the fee” under the new law “begs the question of whether it’s efficient and practical” to do so.
“To continue to offer them on those who opt-in would be more expensive,” [Desiree Fish, a spokeswoman for American Express] said. “We just don’t rely as heavily on those fees, and it’s not going to be as much of a financial impact for us as it would have been to put in that whole opt-in situation.”
AmEx will still let select spendthrifts exceed their credit limits, but they will no longer charge for privilege. Discover claims that they’re eliminating the fee as “a convenience to customers,” and insists that they’re trying to honor “the spirit rather than just the letter of the law.” Yeah right. Creditors are universally responding to the consumer protection measure by raising rates and cutting rewards. Still, for AmEx and Discover customers, the overlimit fee is dead, and that’s worth celebrating.