23 May2011

What is an “Overlimit Fee”?

In the last few years, many (but not all) banks with credit card businesses in the Philippines have introduced “overlimit” fees. Basically, banks set a “credit limit” which is by definition SUPPOSED to be the maximum amount of credit a customer is allowed to avail of, THEN the bank “allows” (notice the unilateral move) customers to EXCEED that stated credit limit and then they CHARGE often EXORBITANT rates for the “privilege”… How completely and utterly ABSURD is that?

Why is it ABSURD, in my personal opinion?

An overlimit fee is absurd for the primary reason that the bank has already determined a CREDIT LIMIT per client or groups of clients under one main card. While I agree that it is also the cardholder’s responsibility to use his/her card responsibly and within established credit limits, the nature of the transactions and data tracking falls heavily in favor of the card company to be able to EASILY track the status of the cardholders charges at any given point in a typical period. The extensive and almost SOLE reliance on computers to indicate if a client has reached, breached or crossed his/her limit is EASILY relied upon to PREVENT any card from going “overlimit.” The often used explanation of banks that they do this SOLELY AT THEIR DISCRETION and presumably for THE CLIENT’S CONVENIENCE falls flat when they charge a fee for the situation. If banks were serious about providing for their clients’ needs, then perhaps they would consider allowing one charge to cross the credit limit within reasonable sums, then indicate to the client by text, email or phone call that their cards have breached the limits and all future charges will be denied. But as is the case for several of these banks, they ALLOW REPEATED CHARGES AFTER the credit limit is breached (I have personally seen up to 8 charges approved after limits were breached!) WITHOUT ANY SERIOUS EFFORT to contact the client to let them know the current situation of the account. The fees charged for this CONVENIENCE are often exorbitant:

For example: Let’s say you have a PHP50,000 credit limit. You charge up to PHP49,500, just below your credit limit. Then you charge PHP1,500 and it is not denied. You charge again PHP1,000 and still it is not denied. Then again for PHP2,000 and it is approved still. You will have exceeded your credit limit by PHP4,000 that period, and depending on your bank, you could be charged as low as PHP500 at HSBC, and theoretically as high as PHP1,500 at Standard Chartered or Metrobank (that charge per occurrence). The PHP500-1,500 in fees for a PHP4,000 overlimit amount is equivalent to 12.5% to 37.5% for a few days time (and up to a month maximum). That translates into an equivalent annual percentage interest rate of 150-450%!!! THAT IS ABSURD! For me, that certainly would approximate a general definition of usury I would think. And this could all have been avoided if the bank simply set the instructions for its computers to stop charges once the limits have been breached!

The U.S. Government has BANNED or OUTLAWED “Overlimit Fees” in 2010 — an enlightened move that recognizes how ridiculous and ANTI-CONSUMER they really are:

In the U.S. CARD Act that went into effect on February 22, 2010, President Obama signed some new regulations with respect to credit cards. With respect to “overlimit fees”, and I quote:

“Over-the-Limit Fees: Issuers cannot charge you a fee if you go over the limit on your credit card unless you have given them permission to authorize purchases that put you over your limit. Issuers cannot charge an over-the-limit fee if you go over the limit solely due to interest charges or fees. If the issuer does authorize a purchase that puts you over your limit, you cannot be charged an over-the-limit fee unless you had opted-in to be allowed to go over the limit. (This does not require card issuers to allow you go to over your limit. They are still free to decline purchases above your credit limit.) When over-the-limit fees are permitted, an issue cannot charge an over-limit fee more than once per billing cycle. If you only go over the limit that one time (and don’t continue making purchases that put you over your limit), you cannot be charged over-the-limit fees for more than three months in a row, even if your required minimum payments don’t bring you back under the limit.”

Should overlimit fees be allowed if the client AGREES to pay the fee beforehand? Yes.

To counter banks’ arguments that they do this SOLELY for client convenience, then why not simply ask clients if they WANT this facility, and HAVE them EXPLICITLY sign up for it. Instead of the other way around where they automatically assume everyone either wants or needs it! This is a similar concern to that of banks just wantonly inncreasing credit limits in this country when the risk of loss falls on the cardholder when cards are stolen or fraudulently used.

Marketman’s Opinion

It is my opinion and solely opinion, that some banks in the Philippines probably charge the OVERLIMIT FEE for the sole reason that they want to increase their fee income. Clients who are most likely to be paying this fee are probably those with lower credit limits to begin with and/or those who are running very high balances on their credit cards, with less financial resources to pay off their bills. Either way, the fees are, in my opinion, highly opportunistic and extremely anti-consumer given that the bank is the one who has the SOLE discretion to allow overlimit charges, but then CHARGES a large fee for the “privilege”. How much in this fee category do banks collect per annum? Shouldn’t the government authorities insist that they disclose this? Are these funds that could have been easily saved by consumers if banks just stuck to their credit limits?

My “back of the paper napkin” estimates would go something like this. Let’s say there are 6 million cards in the Philippines paying 72 million monthly bills per annum (12 months x 6 million) and just 1-2% of those monthly bills go overlimit in a given year, that would mean that 720,000-1,440,000 instances of overlimit charges could have occurred. If you assume PHP500 on average in fees (remember some banks charge for EVERY transaction, not just once, other banks don’t charge at all), then that would suggest a very crudely estimated PHP360-720 million in overlimit fees collected every year!!! But I suspect it could very well be higher than that in reality.

What can be done, who will benefit, be hurt by changes???

Why not just stick to the real concept of a CREDIT LIMIT? It is the maximum amount of credit that the bank is willing to extend. Beyond that, the charges should be denied. Simple, right? If the client thinks they will be needing overlimit privileges, then they can ask for a higher credit limit, or barring that, then explicitly agree with their bank or credit card company that they are WILLING to pay fees for that overlimit facility. This all makes COMMON SENSE. But apparently many people don’t recognize that. How much simpler a situation could a REPRESENTATIVE or CONGRESSMAN/WOMAN have for pushing for laws or amendments to banking regulations that could potentially benefit up to 4 million credit card customers and their families, a voting constituency of say 8-10 million total, almost enough votes to elect a SENATOR of the REPUBLIC, and many of them citizens are the folks that FUEL the engine of ECONOMIC GROWTH in this country, who are productive, earn an honest living, pay taxes, save and invest? This would definitely be a no brainer for me. Gutsy interested elected officials out there? Contact me if you want to understand more about this issue and others related to it…

And now, an INTERESTING PERSONAL EXPERIENCE some of you may want to read about. I am no shrinking violet when it comes to banking issues. Last year, I took up the automatic credit limit increases and overlimit issues with one of the banks listed above, and sent letters to the CEO, and had extensive talks with several of their most senior managers. The credit limit and overlimit fees were just some of the minor concerns then. For the past three months, I have been going back and forth with the same bank on service related issues, and again the topic of credit limits and overlimits have resurfaced to even better and damnin, in my opinion, written communications. So you may be amused, infuriated, irritated, annoyed, bemused by the bank’s official to the issues:

First, last year, a letter from the CEO of the Bank on 25 March 2010, stated with respect to credit limits and overlimits on our staff credit cards, and I quote verbatim:

“With respect to the credit limit assigned to your card, I confirm that we have arranged to suppress any automatic increases in your credit limit until such time that a request is initiated from your end. Allow me to clarify, however, that for cardholders such as yourself who demonstrate exemplary account handling behaviour, the Bank has in place a tolerance threshold for certain transactions which exceed the designated limit. As such, I hope for your understanding that we are unable to suppress this feature as doing so would affect other cardholders who exhibit the same account handling behavior.”

The interesting conclusion — yes, definitely banks can SUPPRESS automatic increases in credit limits, so don’t take no for an answer. If they could suppress our limits, they can suppress automatic increases for you as well. This is written proof. As for not being able to suppress overlimits, I wasn’t impressed by their explanation, and know that a slight update to their software could easily accommodate this request if they were indeed seriously concerned about the client’s wants and needs.

From this year, a letter from a Senior Vice President, in the cards area, dated 04 April 2011, with respect to over credit limit, and I quote verbatim:

“Over Credit Limit: The Bank has a tolerance level threshold for certain transactions which exceed the designated limit. As such, we ask for your understanding that we are unable to suppress this feature as doing so would affect other cardholders who exhibit the same account handling behaviour. In recognition of your preference regarding this issue, we shall endeavour to call you in instances when your credit llimit has been breached.

With regard to the Overlimit Fee, we understand there are instances, due to the tolerance threshold applied, where the credit card accounts may be subjected to the fee. In the same way, we regret that we are unable to suppress the automatic charging of the subject fee as this applied through (Bank’s) credit card base. However, we will proactively reverse the fee after it gets posted to your account.

The interesting conclusion — the bank in question has promised to “endeavour” to call me whenever the account crosses the credit limit. The reality? They never ONCE called me when the account breached the limit 2-3 times over the past year where supplementary cards with low limits breached the credit limits. But see how privileged Marketman is, they will call me, but not call hundreds of thousands of other card holders… how outrageous is that. Shouldn’t you request the same exceptions? Shouldn’t you be given a call if you cross your credit limits? Even better, every single time an overlimit fee is charged to my account, the bank has promised to REVERSE it. It means I will presumably NEVER pay an overlimit fee. Again, shouldn’t all of you be given the same treatment? I certainly think so. :)

REFERENCES:

And just so you don’t think I am making this all up, below are some definitions of “overlimit fees” from several foreign and local banks operating in the Philippines. I will state that Bank of the Philippine Islands appears to be the only large credit card player that DOES NOT, repeat DOES NOT charge overlimit fees. Please email me if I am mistaken on this.

1. HSBC Philippines (with an estimated 500,000+ active credit cards) defines the overlimit fee in the Terms and Conditions governing its various credit cards as follows, and I quote:

“In case the CARDHOLDER exceeds his/her approved CREDIT LIMIT on billing date, the CARDHOLDER shall pay the ISSUER an overlimit fee of PHP500.00 for such billing period, or such other amount as may be set by the ISSUER from time to time.”

2. Standard Chartered Bank Philippines (with an estimated 230,000+ active credit cards) has this in their frequently asked questions section in answer to the question “what if I go over my credit limit?” and I quote:

“For every purchase or transaction in excess of your assigned credit limit (inclusive of retail purchases, cash advances, fess, and other charges), an over limit fee of P500 will be charged to your card account.”

3. Citibank Philippines (with an estimated 1,000,000+ active credit cards) describes their Overlimit Fee as, and I quote:

“P500 if you exceed your credit limit by your Statement Date.”

4. Metrobank (with an estimated 300,000+ active credit cards) has one of the lengthiest definitions in its Terms & Conditions, and I quote:

“The Card Member and/or supplementary member(s) shall keep track of his/their total obligations so as not to exceed the approved credit limit at any given time. The indication of a credit limit on the Credit Card account shall not relieve the Card Member, supplementary member(s), and co-obligor from liability for all purchases, cash advances, fees and charges in excess of said credit limit. MCC reserves the right, without prior notice, to decline any transaction, suspend the Credit Card privileges of the Card Member and his supplementary member(s) and/or charge an over limit fee for every occurrence in such amounts as may be fixed and announced by MCC, if the credit limit will be or has been exceeded.”

According to this table, the overlimit fee at Metrobank is equivalent to PHP500-700 PER occurrence.

—–

The vast majority of the readers of Marketmanila.com have at least one credit card in their wallets. The objectives of the following series of posts on credit cards in the Philippines are simple. To help readers, acquaintances and the public in general understand the local credit card industry a little better. To highlight the unique risks associated with Philippine-issued credit cards. To remind the public of particular safeguards they should consider to reduce the risk of holding their credit cards. To explain some of the salient features of credit cards that people may wish to learn more about. To encourage our legislators to review the laws governing local credit cards to ensure a truly reasonable playing field that protects consumer’s rights, as well as those of banks and credit card companies. To encourage the public to educate themselves and seek fair laws that govern the credit card industry in the country. And to narrate several recent, specific credit card and banking service shortfalls that I have experienced and which are a useful tool to illustrate many of the objectives stated above.

Interested in reading the rest of the credit card series? Click here:

Part I – An Industry Overview
Part II – Credit Limits

 

COMMENTS:

  1. Buddy says:

    Banks don’t like people to steal from them but they would be more than happy to steal from you as long as they can. In the Philippines pera pera lang yan. As long as they are allowed to do it, they will.

    May 23, 2011 | 11:03 am

     
  2. Anton says:

    In general, it is true that computers should solve this overlimit issue. But there is small percentage of the situation where people can still use the old charge slips. This becomes a problem.

    I do agree with you in general about the illogical situation. But then who says banks have always been logical?

    Case in point. They want us to make investments in our Philippine accounts but if I want to invest, I have to show up in the branch to “confirm” I am one and the same person. Well, hello, you just lost your potential investor since he is living abroad at present and will not make the time to go back to Manila just to “make” an investment.

    May 23, 2011 | 11:51 am

     
  3. Gej says:

    Couldn’t agree more that Over-limits, and over-limit fees are absurd. Don’t they use these on-line machines that have the current outstanding purchases? And don’t these machines give instructions to the merchant whether to decline over-limit purchases?
    I may be wrong, but this over-limit fee may be a throwback to the days (late 80s, and earlier) when there were no on-line Point of sale machines that could determine whether limits have been reached, and which could otherwise have alerted merchants to decline the purchase. during those times, what was used was a “negative List” – a print-out that had the names and card numbers of cardholders who had delinquent accounts, or had exceeded credit limits, or lost/stolen cards. Merchants then had to check a card against this steadily lengthening negative list. Since purchases were not transmitted on-line that time, banks were delayed in determining who had exceeded credit limits (they only found out after they had manually encoded the charge slips submitted by merchants a few days after the actual purchase). To discourage over-limits, they charged a fee then. There was another control, the single purchase limit, which did not need on-line facilities to determine ( the code was included in the credit card number), to somehow discourage cardholders from eventually exceeding credit limits.
    It seems that banks have learned that certain things they considered as “violations” in the past, like late or incomplete payment of credit card bills (for which they temporarily suspended the use of the card) , over-limit purchases (which they can easily control through the on-line system) , are revenue generating, with fees translating to such huge effective interest rates.
    And isn’t it so uncanny that the over-limit fees charged by banks are practically identical? Market forces? Competition?

    May 23, 2011 | 12:37 pm

     
  4. david says:

    This is really a great series and a nurturing one as far as my financial health is concern.

    Thank you.

    Hmm I am wondering if the drafters of these “terms and conditions” automatically goes to hell?

    May 23, 2011 | 12:56 pm

     
  5. mel says:

    Add to that, those overlimit fees are being charged with their usual interest. If ever there were erroneous charging of overlimit fees and you requested it to be reversed, only the overlimit fee is reversed, not the interest amount that was charged on that overlimit fee.

    May 23, 2011 | 2:22 pm

     
  6. Bubut says:

    I have exceededs my credit limit with my credit card with East west bank. They allowed the excess but they did not change me. For my BDO credit card, the system will not allow you to exceed your credit limit, which i also experienced twice.

    May 23, 2011 | 3:13 pm

     
  7. joanne says:

    This is definitely a predatory practice by the banks. The Overlimit feature should be made an opt-in feature asap for those who want it, not a no-opt out feature.

    May 23, 2011 | 3:57 pm

     
  8. Michelle says:

    Metrobank charged me twice for exceeding limit which only exceeded limit because of additional charges from them. If from POS, it could have been denied transaction. But since they are the ones charging the fees, it was allowed and they charge an over limit fee.
    I am discontinuing my card from them and sticking to my old reliable BPI.

    May 23, 2011 | 6:19 pm

     
  9. kim e says:

    i’ve had better experience with eastwest bank since they will call you if they think that a transaction is dubious. with metrobank i have called several times to tell them not to allow any transaction that will exceed my credit limit. but they still allow it, then when i call them later to complain about an overlimit fee, they will reverse it. why allow it in the first place

    May 23, 2011 | 7:56 pm

     
  10. EbbaBlue says:

    Now that’s credit card. What about Debit Cards? I know, I know, I should know my balance but thinking its a debit card which relies on your actual balance, I will purchase stuff using my debit card and it will allow me to go over the limit, i.e. I will tell the clerk “ok charge up to how much my card will allow since I am not sure of my balance”, and to my surprise she’ll say the machine accepted the whole amount, no need to pay the rest in cash (in my mind I know I don’t have that much). Sure enough it wen’t over my balance (and I don’t have the overdraft protection plan-savings where money can be transferred), and so I asked the bank why and they say it is just so. But then I was charged a fee of $39.00! This is not just in 1 bank, seems its a familiar scenario. So now, I just pschologically leave $50.00 in my account, and start with a $1.00 balance on my $51.00 deposit.

    May 23, 2011 | 8:36 pm

     
  11. Andy says:

    “I will state that Bank of the Philippine Islands appears to be the only large credit card player that DOES NOT, repeat DOES NOT charge overlimit fees.”

    If this is indeed the case, shouldn’t most people who have been charged this overlimit fee give their business to BPI? Ask to have the fees waived, and if they don’t, cancel the card – that’s what consumers should do, vote with their wallets.

    May 23, 2011 | 9:05 pm

     
  12. fried-neurons says:

    The blatant disregard of credit limits in favor of allowing charges to go through, and socking the consumer with over-limit fees, is a relatively recent “development” in the credit card world, I think. I don’t have any hard research to back it up, but I have a feeling this practice has been around less than 10 or 15 years.

    The reason I say this is that when I had my first credit card back in the early 1990s (a Citibank MasterCard here in the US), I actually had a purchase declined because I had reached my credit limit, which at the time was a comically low $800. I was trying to buy a sweater at Epcot Center. lol. I had to call Citibank’s 800 number and ask for an emergency credit limit increase before I could use my card again.

    Do Philippine banks make it difficult to get your limit lowered? Here in the US all it takes is one phone call. BofA kept raising the limit of my Visa without consulting me, until one day I noticed it was up to $30K, so I freaked out. In one phone call I had it lowered to $8K.

    May 23, 2011 | 9:31 pm

     
  13. JE says:

    The U.S. Card Act was put in place primarily to counteract these seemingly questionable practices; some credit card companies did remove their overlimit fees, but then in such cases they had to find some other way to earn revenue (I think the article I read listed some 30 billion USD as the yearly combined revenue from overlimit fees in the US). To replace charging overlimit fees, which accounted for a significant portion of the card revenue, they either raised finance charge rates, or raised their other regular fees.

    In any situation, actually preventing/declining the transaction if already over the credit limit would be a great response. How each credit card system works seems to be a tradeoff between maintaining the account holder’s sense of security and the need to maintain a margin of profit; in my opinion the revenue from overlimit fees wins out since the gains there are readily visible.

    One other problem is that the repeated overlimit transactions should already be at least a signal that it is possibly fraudulent activity. From your account, it seems local issuers don’t have a very good system in place to assess that a certain account may already be compromised if it repeatedly keeps charging over the limit. To complicate that further, if somebody has a really high credit limit they didn’t want, and activity suddenly spikes from the norm, when is the account holder warned? And at what threshold would such activity warrant being looked into?

    There’s just so much potential for things to go wrong.

    May 23, 2011 | 9:38 pm

     
  14. juls says:

    is BDO doing this practice also? can someone shed light on this?

    May 23, 2011 | 11:09 pm

     
  15. gina says:

    What the banks are doing over there is just as bad as what the “pay day” loan establishments are doing here in the US, that is, charging an arm and a leg to poor desperate people.

    These consumers are just trying to make ends meet from one paycheck to the next. And the banks, by charging the exhorbitant over the limit fees, are really and truly taking advantage of these consumers. Sounds to me that the banking industry in the Philippines has no conscience.

    If Andy is indeed correct about BPI not charging these fees, then more power to them. They’ve managed to be one of the most profitable bank in the Philippines even without usurious practices. In this very, very bad world, at least there are still a few good guys out there…..

    May 24, 2011 | 4:43 am

     
  16. Bubut says:

    @juls, BDO will not allow you to exceed your credit limit. from the POS the sales clerk will tell you that you have exceeded your limit.

    May 24, 2011 | 8:09 am

     
  17. present tense says:

    I have no problem with this IF AND ONLY IF they would allocate a reasonable amount say 70% to provincial poverty programs, or taking part in the national development – instead of giving out cash envelopes among themselves during board meetings. Otherwise, their names, profile pictures, and addresses – should be made public knowledge – if only to alert the kidnappers. Sad thing is, the officers who dream up the technicals of the scheme are the ones who get promoted.

    May 24, 2011 | 8:14 am

     
  18. Mimi says:

    Loan shark, somebody who lends money at excessively high rates of interest. So would that mean Philippine credit card companies are loan sharks?

    May 24, 2011 | 2:48 pm

     
  19. present tense says:

    The term loan shark is fitting but they are more like scavengers – janitor fish – who suck the life out of dirt

    May 24, 2011 | 4:52 pm

     
  20. kristine says:

    Off-topic but certainly an interesting new fee. I just noticed that Citibank now charges a “payment processing fee” and to quote “Php 40 shall be charged for each Citibank Credit card payment made more than 4 times per month. Applicable for payments made in all payment centers except Citibank Online, Citibank N.A. ATMs/ Card Payment Express Machines, Citibank Savings, Inc. ATM and Citiphone Self Service Telephone Banking.” (first page on my May statement). Ridiculous. This takes out the convenience of paying online from my other bank accounts.

    May 26, 2011 | 1:45 pm

     
  21. sandee says:

    kristine: That’s not a new fee, rather the condition’s been revised. It used to be P40 for payment made more than twice a month.

    May 27, 2011 | 1:38 pm

     
  22. Tom says:

    When the loan institutions are loaning its ok to take. But when you in a sense default on that loan they have every right to demand a fee. Just as in the US the creditors are creating a huge credit bubble that is sure to burst and of course crash the Asian markets. Then when need to be “bailed” out cause they are too big to fail don’t whine when your taxes are raised just like what is happening in the good ole usa.
    Use credit cards for emergency only, not for extravigant purchases

    May 30, 2011 | 10:26 am

     
  23. gab says:

    i was staring at my mang tomas and i googled liver sauce, saw your blog, and then i saw this.

    i never had a problem with bpi.. use your card responsibly! try visa debit cards, it’s easier

    Jun 2, 2011 | 6:24 pm

     
  24. csrol says:

    if you don’t know how much you have charged on your credit card you are not responsible with your finances and should not even be using a credit card.

    Dec 28, 2012 | 7:30 pm

     
 

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