Consumer Confidential: A credit spending limit in name only

Bob Kargenian, a financial planner, set up an extra card on his American Express account for his son.

“We wanted it to be a safety net,” he told me. “We also wanted to impose some discipline.”

To accomplish both goals, Kargenian, 59, established a monthly spending limit of $350. He showed me a copy of his bill. There it was: “Monthly spending limit $350.”

Yet that same bill showed that his 22-year-old son had run up $547 in charges.

“How does that happen?” Kargenian wanted to know. “If you’re not going to decline charges, what’s the purpose of setting a spending limit?”

It gets worse. Kargenian said his calls and letters seeking answers from AmEx got him nowhere.

“They kept saying they’d get back to me,” he recalled. “But they never did.”

Before we go further, let’s take a step back and survey the landscape.

Consumers received a number of important protections under the Credit Card Accountability Responsibility and Disclosure Act, aka the Card Act, which President Barack Obama signed into law in 2009. Safeguards include limits on interest rate hikes, clearer due dates and the right to reject changes in terms (although this means you’d have to pay off and close the account).

Another provision of the law is a requirement that card issuers receive cardholders’ permission – that is, an opt-in – before imposing fees for going over a card’s credit limit. Those who choose not to opt in typically have transactions rejected if they exceed available borrowing power.

If you did nothing after the Card Act took effect, you were automatically opted out from over-limit fees.

According to the Consumer Financial Protection Bureau: “If you have agreed to permit over-limit charges, you generally can be charged a fee of up to $25 the first time you exceed your credit limit and a fee of up to $35 if you are over your limit a second time within six months.”

Moreover: “If you elected to allow the card issuer to allow charges that exceed your credit limit, you have the right to change that election at any time by notifying the card issuer.”

The bureau estimates that the Card Act has saved consumers at least $16 billion in fees, including $9 billion in over-limit fees.

Keep in mind, though, that there’s nothing stopping a bank from raising your credit limit – without charging you a fee – if a transaction pushes you over the top. This might be done on a temporary basis to save you from the embarrassment of, say, a card being rejected at a restaurant, or the limit might be permanently increased because the bank doesn’t see you as a greater risk.

So-called authorized cards, such as the one Kargenian set up for his son, can be trickier. Banks may be more willing to allow over-limit transactions because they can go after the main account holder if the authorized cardholder can’t pay.

“At the very least, the bank should send an alert to the account holder saying that an authorized card has gone over the limit,” said Linda Sherry, director of national priorities for the advocacy group Consumer Action. “A limit should be a limit, but that’s not always the case.”

Leah Gerstner, an AmEx spokeswoman, thanked me for bringing Kargenian’s situation to the company’s attention. But she declined to discuss his case “for privacy reasons,” even though I was the one who’d invited AmEx to the party.

Speaking hypothetically, she said, an authorized-card transaction could carry over from one billing cycle to the next if it was still being processed at month’s end. In such cases, “it will appear to exceed the following month’s spending limit.”

Hypothetically, then, that’s how a $350 spending limit could result in a $547 bill. But that doesn’t address why AmEx did such a miserable job explaining this relatively straightforward proposition to a customer.

Kargenian said he called twice and twice a service rep was unable to come up with an explanation (see above) for his bill. Twice he was told that the rep would get back to him and twice that never happened.

Kargenian canceled his son’s card, paid off $350 of the bill and wrote to AmEx asking for some answers before he’d pay off the rest.

AmEx wrote back to acknowledge cancellation of the son’s card and to say that if Kargenian wanted any answers, “please contact our Account Services Department at the telephone number on your billing statement,” which is, of course, exactly where Kargenian had started.

Gerstner declined to tackle this complete breakdown in customer relations. She said only that “we apologize for the frustration caused to the card member.”

Too late. Kargenian canceled his and his wife’s AmEx cards.