You will not be charged an over-limit fee unless you agree to it first.

Key points:

You will have more say in the amount of credit you’re initially provided with.
You will not be charged an over limit fee unless you have an agreement with your lender.
This only applies to credit card contracts approved after the 1st of July 2012.

The reform

According to the Treasury’s Credit Card Reforms Impact Statement, ‘some customers do not realise that banks may extend credit beyond their agreed credit limit, and may be charged a fee for doing so.’

Prior to the reforms, cardholders that wanted to opt-out of being allowed to exceed their credit limit and getting smashed with over-limit fees had to submit one of these forms.

In fact, the report cites a 2008 ANZ Financial Literacy Survey, where it was found that only 6% of people take steps not to exceed their credit limit. So it’s no surprise that the banks are reaping in hundreds of millions of dollars a year because of people’s lapse attitude towards spending on their cards.

But you don’t need a bank survey or government impact statement to tell you that it can be difficult keeping track of all the purchases you’ve made, especially if the card is used as a day to day source of funds. It doesn’t matter if you have exceed your limit by a couple of dollars or a couple of hundred, your bank is going to hit you with a fee regardless – anywhere between $10 and $30 each statement period.

Anticipating the reforms, NAB abolished over-limit fees in 2011 leading to the rest of the Big 4 Banks reducing their own, but still charging customers $10 or $15 each time they exceeded their limit. From the 1st of July, all credit card providers must not charge a cardholder with a new credit contract for exceeding their credit limit, unless there is a prior arrangement authorising these charges.

As this only applies to new credit card contracts, if you’re not going to get a new card you can ‘opt-out’ of paying over-limit fees with your existing credit card. You can do this by submitting a written request telling your lender that you do not wish to be able to exceed your credit limit and subsequently will not receive any over-limit fees.

This request is often overlooked by cardholders and under-advertised by banks.

What’s changed?

When you apply for a card, you’re going to have more of a say over how much credit you receive in the first place.

You will still be assigned a credit limit based on the information you have given to your lender during the application process; however, you have the option of choosing whether you would like to receive the maximum amount or whether you’d like a lesser amount.

Changes to the law mean no over-limit fees will be an automatic inclusion for all credit card contracts approved after the 1st of July 2012. If you still want to be able to spend over your limit, you will need to contact your lender and tell them that, ‘I would like to be able to spend over my credit limit, and it’s o.k. to charge me a fee if I do so.’

Lenders must also notify you when you are about to reach your credit limit. They will do this by the fastest means possible. It’s advised that you keep your mobile contact details up to date so you can receive a text message when you’re approaching your credit limit. If your lender can’t contact you via SMS, they’ll send out an email and then a letter to your postal address, which might take days.

What does this mean for you?

Changes to the regulations that govern credit limits and over-limit fees mean that you will not be able to spend past your approved credit limit. This will have implications for cardholders who need emergency access to funds, but it also means you can say goodbye to being charged a fee for spending over your credit limit.

Is it worth switching cards to take advantage of the new regulations?

These changes to credit card credit-limits will only apply to cardholders who have opened an account after the 1st of July. Deciding on whether it’s going to be a good idea to switch to a new card to take advantage of these changes is going to depend on the way you use your credit card.

If you find yourself frequently exceeding your approved credit-limit and are incurring a fee for doing so, there are a couple of options available to you. You can choose to keep your current card and ‘opt-out’ of exceeding your credit-limit and getting charged an over-limit fee; however, this means you will only have as much credit as your limit allows and you will not be eligible to take advantage of any of the other changes to the law that apply to new credit card contracts only.