Credit limits might better be called "fee triggers."

[MidnightVoice]

http://redtape.msnbc.com/2008/04/a-new-way-to-ra.html#posts

Discover announced recently that there's a new penalty for cardholders who exceed their credit limit, in addition to the $39 fee -- a higher interest rate.

Many consumers might not even realize that they can exceed their credit limit, and in fact the term has largely become meaningless. Card issuers give consumers what some call a "nominal limit," which is the credit limit printed on monthly bills. But nearly all allow consumers to exceed that limit by 10 percent or more (precisely how much is a secret), and then charge fees of $30 to $40 for each month the balance exceeds that limit.

In fact, credit limits might better be called "fee triggers." And now, you should think of them as interest rate hike triggers as well. ........................

Discover has provided additional fodder for discussion. The card issuer has made subtle changes to its member agreement that give it another excuse to raise consumer interest rates. Beginning May 1, any time a cardholder exceeds the nominal credit limit twice, the penalty interest rate will be imposed. That's a steep penalty, and getting steeper, too. Also on May 1, the penalty "default" rate jumps from 29 percent to 31 percent for Discover members.

"This is a significant increase," said Bill Hardekopf of LowCards.com, adding that using a credit limit transgression as an excuse to raise interest rates is new to the industry. ............Discover defended the practice as a necessary way to balance the cost of serving risky customers.......................................

[Anonymous]

"This is a significant increase," said Bill Hardekopf of LowCards.com, adding that using a credit limit transgression as an excuse to raise interest rates is new to the industry."
[ It is??? I think he's about 10 years behind the times! He obviously isn't aware of Cap1's & WaMu's policies about paying late or going over the limit. ]

"It's not clear when the practice of tying credit limit excesses to interest rate hikes began."
[ A longggggggggggg time ago, Rip VanWinkle! ]

Great article M.V.

They "allow" people to go over their limit by 10% and decline the transaction, so they can do the over the limit fee, and rate jack number. If they can stop it at 10%, they can stop it at 0%. But that wouldn't make economic sense as the ccc's rely on their predatory lending practices to keep them afloat.

There once was a time when there was such a thing as morality in lending practices. My how times have changed.

[MidnightVoice]

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Sylviatob wrote:
There once was a time when there was such a thing as morality in lending practices. My how times have changed.

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You must be nearly as old as me if you remember that 

[haulingthescoreup]

Another reason to pad one's CL's a bit.

[Anonymous]

If I go over my 6800 limit twice- I would be in real trouble anyways.

[haulingthescoreup]

Still amazes me how many people genuinely believe that it's completely appropriate to have high balances on all their cards, month in and month out. Other than maybe one BT on one 0% card, the whole idea makes my toes curl.

Other than a car or house, or something similarly tangible, if you can't pay it off in three months or so, you probably shouldnt' be buying it. I have cards for just-in-case (one of us loses a job, sudden medical disaster, house burns down and we're in limbo for a while until the insurance gets going, etc.)

[MidnightVoice]

I am now at a point where going over the limit on any one card would mean I am in trouble!

[Anonymous]

I am in trouble if I ever go over the limit twice, too.  I just had my APR lowered by BOA and the disclosure the analyst read said it would default to something like 33% if I went over the limit twice or was late for a payment.  I also got a notice in the mail from Discover that is concurrent with what has been said in this thread.

[Anonymous]

Great post, MV!

Interesting read.

[dizzier]

i would never go over my limit once let alone twice.