The credit card reform Congress passed last year ended “over limit” penalties –- typically $35 fees applied when cardholders charge more than their credit lines allow -– unless customers opt in. At least for consumers –- not so for business credit cards, which the CARD Act does not regulate at all. Now, with two sets of rules, confusion abounds.
Consider what happened to Kevin Reeth, the 39-year-old CEO and co-founder of Campbell, Calif.-based Outright, a 10-employee online bookkeeping service for small businesses. He got an American Express SimplyCash Business Credit Card last spring, shortly after the startup raised a $2 million round of seed funding. Despite all that cash in the bank, Outright’s American Express card came with a $3,000 credit limit — Reeth says the company told him that Outright, founded in June 2008, was too new to qualify for more credit. He’s been hit twice with $35 over limit fees since Oct. 1, 2009, when AmEx eliminated those penalties on consumer cards.
Searching on the AmEx Web site, one might easily think the company had done away with these fees altogether. Here’s a screenshot from its page on credit card reform:
Though it is on the “Consumer Resources” part of the AmEx site, this is a pretty categorical statement: “Although it’s not required by the new credit card laws, American Express eliminated all over-limit fees effective October 1, 2009.”
AmEx doesn’t disclose what portion of their business commercial cards make up, but it’s one of the top issuers in the small business market -– and over limit fees are not going away on small business accounts, AmEx spokeswoman Rosa Alfonso confirms.
Reeth found American Express inconsistent about when he could exceed his $3,000 credit limit, even with the fee. His card was declined when he tried to pay for a dinner in Las Vegas last spring, and again at the Apple store when he tried to buy a laptop for an employee in December. But on Nov. 13 -– the month after AmEx had dropped the fees on consumer cards -– Outright was charged a $35 over limit fee for a monthly bill of $4,670. Two weeks ago, the company got another $35 fee on its March statement with a balance of $3,542, Reeth says.
“Sometimes you won’t let me spend the money if it goes over the limit. Other times you will and you won’t tell me, and you charge a fee,” Reeth says.
It seems that there’s no clear way for cardholders like Reeth to know whether any individual charge above their credit limit will be declined, or approved with a fee. “Decisions are made on a case-by-case basis based on our assessment of the customer and transaction which includes cardmember’s spending, repayment pattern with us, the amount of the charge, in addition to other factors,” Alfonso says in an email.
American Express only imposes the over limit fees when accounts are over their credit lines at the end of a billing period, Alfonso says, so business customers can avoid over limit fees if they pay their balance down to below the limit before the cycle ends. “In addition, American Express offers an alert system to help customers stay within their credit limit. Cardmembers can sign up for alerts via text message or emails which help them manage their balance,” she says.
Alfonso also says businesses can request higher credit limits by calling the number on the back of their cards. In some cases, AmEx will ask for financial statements or tax returns to determine if an increase is appropriate.
Reeth, who says he has met with AmEx executives about potential business partnerships with Outright, says he doesn’t pay attention to how close to the credit limit he is –- he just uses the card as he needs it. It’s not an essential payment method for his well-funded startup -– he can always make purchases through a direct debit account.
For AmEx’s part, Alfonso says the credit card company is voluntarily applying some aspects of the CARD Act, which took effect Feb. 22, 2010, to small business cards. Business customers will have 45 days to opt-out of any across-the-board rate increases or other changes AmEx makes to entire card portfolios, though not to changes to their individual accounts (like rate increases that follow late payments, for example). Other changes include adding late payment warnings, making statements clearer, making the payment due date the same day each month, and allowing 21 days from the statement date for payment.
But overlimit fees persist. Reeth says that a search on Outright’s system of 2,400 bookkeeping clients that upload their credit card data reveals $8,600 in over limit fees (from all credit card companies). He notes that the fees are in essence high interest charges for short term credit. The $35 he was charged for exceeding his credit limit by $542 approaches 7% interest on a loan that lasts one billing cycle. The law no longer lets credit card companies charge consumers such fees unless they explicitly consent to them –- but businesses aren’t so lucky.