Credit Card Bill Of Fewer Rights?

The New York Times reports one of the early casualties of Congress' recent credit card "bill of rights" legislation. A few prominent credit card companies are actually taking a right away from many in response to the new regulation: the right to exceed your credit limit. The Times says:

The changes at Discover and American Express (which, by the way, included in its letter a notice that it would raise late fees and interest charges) come in the wake of the Credit Card Accountability, Responsibility and Disclosure Act, which bars card companies from penalizing consumers unless they specifically ask to breach their limit and agree to pay for the privilege.

How did they do it? Easy. They eliminated their cardholders' ability to purchase anything that would put them over their credit limit, unless the companies allow them to do so for no additional fee. After all, those who cannot breach their limit will never need to pay the fee.

No word yet on whether other companies will follow suit. Here's some additional explanation from the Times:

Rather than levying the fee automatically, both firms will now use technology to decide whether and when to allow consumers to exceed their limit, based on the cardholders' recent spending and creditworthiness.

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.

The Times gets this exactly correct. This move is hardly in the spirit of the credit card bill of rights. Greater liberty would have resulted if credit card companies allowed customers to opt in or out of the ability to exceed their credit limits. Instead, the companies will just make that decision themselves, depending on whether they think you will pay.

Here's an example of how it would work: Let's say your credit limit is $1000. You already have a $980 balance, and you try to purchase something for $25. You may or may not be able to. It depends on if the credit card company wants to let you.

The economic reality is clear: credit card companies will be better off if they are in the driver's seat. Why not allow customers to decide? As the Times notes, it would likely cost them too much to change their systems entirely. The potential costs to the companies must outweigh their potential benefits.

I don't think this decision is one that many consumers should lose sleep over. After all, most people would probably rather be prevented from making a purchase instead of paying $35 to $40 fees for going over their limit. And good customers will be granted this privilege without the fee. Still, it's interesting to see how credit card companies are beginning to react to the new legislation, especially given the assertion that it would provide consumers with more rights.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

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