More on Credit Card Overlimit Policies

I wrote earlier today about a Big Money piece on banks’ dirty tricks and my own story of falling afoul of the game—and the steep price I’m paying as a result.

Ron Lieber in the Times today writes that Discover and American Express are doing away with their overlimit fees. That’s a result of the new credit-card legislation that forces banks to allow customers to opt out of them. Alas, it comes a bit too late for my personal Bank of America mishap, which I wrote about this morn and which is now costing me $110 a month in additional interest after accidentally going over $39.

Lieber’s got some good context, too, delving into the history of the practice, which didn’t inflict fees on consumers (unless they went way over) as recently as the 1980’s. Ah, the age of innocence.

I’ve got a question about this, though:

But before you gush over the changes, consider this: Both firms probably arrived at their decision based on a calculus that showed it would be too costly to build a system that lets consumers opt to breach their credit limit, as the law required. Instead, it was cheaper to simply do away with the fee.

How much could it really cost to write some code to allow people to opt out of going over limit?

Lieber writes that it’s likely the whole industry will likely do away with the fees now. Good.

Meanwhile, Felix Salmon over at Reuters riffs off my BofA tale of woe this morning to make some particularly sharp points about banks, the games they make their customers play, and how they destroy consumer trust.

Salmon points out that what I had was really a personal loan, but the bank offers no straightforward product.

But here’s the thing: what’s a reasonable amount of annual interest to pay for a $7,000 personal loan? Obviously $0 is too little, and $1,300 is too much. At Bank of America, the rates for a simple personal loan are, um, er, oh. There’s a lovely list there of no fewer than 61 different products and services offered by BofA — but simple unsecured personal loans are nowhere to be found. Bank of America doesn’t want to offer personal loans to its customers, because it can make so much more money off them by offering highly-lucrative and fee-laden alternative products like credit cards and “overdraft protection”.

All of this has culminated in the Spy-vs-Spy dance that is the free balance-transfer offer.


Salmon points out that this is fertile ground for the proposed Consumer Financial Protection Agency to clarify some things and perhaps create an environment where banks compete on trust rather than dangling lowball offers that explode in consumers’ faces with one small screwup.

It also points to a failure of the press to frame these issues correctly. I mean, read Salmon’s whole post. You just don’t see much analysis like this. And you certainly don’t get this:

For the time being, we’re right not to trust our banks, because given half a chance they will screw us.

But does anyone really think what he’s said there isn’t a true fact?

Has America ever needed a media watchdog more than now? Help us by joining CJR today.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.