What is Floor Limit?
It is the transaction limit over which the credit card transactions must be approved. The limit can differ from store to store. Since credit cards begin to be processed electronically, floor limits have become less important, and all purchases are usually approved.
The word floor limit comes from the days when it was the maximum amount that could be allowed on the floor (of a retailer), beyond which a cash register operator would have to call for approval.
The floor limit provided the consumer with additional protection to ensure that they did not exceed their credit card limit, and to a creditor by verifying that the customer had the necessary credit available to complete their transaction.
Importance of Floor Limit
Floor limits were of greater significance when most credit card retailers handled purchases by taking a physical card imprint, rather than swiping the magnetic strip electronically, and obtaining an authorization involved time-consuming human intervention.
With modern card readers, most of the banks and merchants will get an authorization even on very small fees, as it costs less to do so and helps in protection against fraud. In certain situations, however, the idea of a floor limit may still be applicable.
Some of the merchants still follow the older system to take a physical card imprint. However, if the retailer or merchant's bank has difficulty accessing the customer's bank due to problems with the computer network, transactions under a certain floor limit will still be instantly accepted electronically.
Floor limits are not applicable to certain types of debit cards (such as Solo and Visa Electron) since these cards need permission to avoid overdrawing of the cardholder for each transaction.
Cons of Floor Limit
A floor limit may result in an account to overdraw, even if the account holder has no approved overdraft.
