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.
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. :)
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: