Who Invented Credit Cards?
84Skank of America
It may seem that credit cards have always been with us, but in fact, credit cards are a very recent invention with a rather scary financial history.
In 1958, Bank of America issued the first all-purpose credit card by simply 'dropping' 60,000 of them on Fresno California, (that is, mailing them out to people who had not asked for them).
Their idea was to pitch a new kind of revolving credit line, whereby people could buy whatever they wanted and pay the balance over time. BOA hoped to cash in on the post-war consumer frenzy, the race to suburbs, and the desire for new appliances, furniture, and whatnot.
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The Diner's Card already existed at the time BOA dropped their first cards, but that card was mainly used for food and gas by businessmen, salesmen, and upscale professional types.
The new, all-purpose
card envisioned by BOA sounded great in theory, but it didn't really
take off at first. During the 50s and 60s, buying on time had a bit of
a bad rep, so people weren't immediately lining up for the all-purpose
credit cards.The Depression was fresh in the memories of the older
generation, and credit was not something to be used loosely if at all.
Then, in 1966, just as the new cards were beginning to take off a bit, an event that has come to be referred to as "The Chicago Debacle" almost buried the entire industry before it got out of training pants. That year, just before Christmas, a group of local banks dropped FIVE MILLION cards on the Chicagoland area, hoping to cash in on holiday charges.
The Chicago drop was so indiscriminate and sloppy that babies, dogs, and dead people got credit cards in the mail, and so many were stolen from mailboxes and sold on the black market (the intended recipients got huge bills in January when they didn't even know they'd been mailed a card) that a Congressional uproar ensued. Many representatives in Congress called for the cards to be outlawed.
Instead, the twin overseers VISA and Mastercard came into being to get things under control and establish some order. They linked retailers into a national network (thus making the cards easier for consumers to use almost anywhere) and they proceeded to combat fraud and create some basic underwriting standards.
The industry began to stabilize, and the cards became much more popular.
However, by 1980 banks were running into problems with state usury laws (the laws that limit the interest that can be charged on unsecured loans). Double digit inflation was squeezing all the profit out of credit cards, which were capped at 12 per cent interest while banks were themselves paying rates of up to 20 per cent on their own borrowing.
So Citibank approached the state of South Dakota and offered to move its entire credit card operation there if it would repeal the SD sury law. SD needed jobs, Citibank needed to charge more interest. It seemed like a match made in heaven. (Or hell.)
Once that lid was blown off,
credit cards became unimaginably profitable. The state of Delaware soon
became another mecca for the card companies, actively courting them for
the jobs. Delaware to this day continues to house a strong industry
lobby, a fact that is not altogether wonderful considering their former
Senator is now the Vice President.
Other very recent credit card innovations include the practice of reducing the monthly minimum payment required so customers can carry more debt, creating the current credit scoring system as an underwriting guideline, and adding various fees and penalties to increase profits. Even more dubious practices include changing the billing cycle regularly and without notice to provoke late payments (and thereby increase penalty and interest charges), charging interest on interest and interest on penalties, and retroactively applying extremely high interest rates to old debt (up to 32% APR) if a payment is even an hour late.
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All of these practices are completely legal.
Today, there is no limit on the amount of interest credit card companies can charge, and no limit on the fees they can impose. Credit card companies can change their terms at will, a fact that is noted in every credit card contract.
Credit cards have become such an integral part of the financial life of people in all developed nations, especially the United States, that it is astonishing to think how recent an invention they actually are. The average American household currently carries an $8,000 credit card balance from month to month, never paying it off, but a significant number of Americans have credit card debt in excess of $25,000.
Today, with defaults skyrocketing as a
result of high unemployment and the housing crash, banks are tightening
up standards for issuing the cards, raising rates, and closing credit
lines completely. A new call for regulation is gaining some traction in
Congress, as even responsible credit card holders receive rate hikes,
cancellations, and other bad news.A recent news article noted that in
the first three months of 2009 alone, 4 out of 5 major credit card
holders saw arbitrary rate hikes of as much as 10%
Will credit card companies survive the recession of 2008 and onward?
God, I hope not.
You have to wonder:
If they can't make money gouging people to this degree, can they make money doing anything?
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Comments
Amazing! My father kept an old credit card still in it's mailing envelope, unopened as a souvenir from a local mass mailing in the early 60s. There was never a credit card in the house that was used. And when the debit cards came out, I never used a credit card again - unlimited interest and fees? - That's murder. Thanks for the Hub!
I once had a silly thought that BOA was the face of evil, you just told me why my gut instinct were right. I've been researching what they've been up to in other countries (along with their buddies) and it's making me sick. Thanks for confirming what I guess I knew.
pgrundy,
You are on a roll,rock on!Thank you for these little tidbits of information on the evolution of credit cards.The commercial real estate market is the next shoe to drop.Chrysler is announcing the closure of 800 dealerships tomorrow,that's a lot of commercial real estate that no one will be willing to buy or lease.Like the mortgage backed securities,the wizards of wall street did the same job bundling(or should I say bungling) into M.B.S.
That will also mean tens of thousands of people who will find themselves unemployed,from distributers, mechanics, receptionist,sales reps and defaults on surrounding small businesses that rely on their patronage(more commercial real estate).I wonder how many of them will have to default on their Visa's.I'm positive that the credit card companies will be deemed too big to fail,very soon,and the politicians will allow them to dig their skanky little fingers into my grandchildren's cookie jar.
How much longer will the lambs remain silent?Are they too afraid of the Collie's over at Homelamb Security?
Skank of America---delicious hub,two thumbs way up!
Thanks everyone.
I do think BOA is the face of evil. Citi is right up there with them.
I have to think massive defaults are already under way. I have to be honest though, I stole the "Skank of America" line from Bill Maher. He calls the other one "Shitti Bank".
In India Shitti Bank is employing goonda(the con men) as recovery agents. Though Reserve Bank of India is enforcing stricter rules, the not-so-matured people are abusing these credit cards(gambling, drinking, etc) and Old people have save their lives from recovery agents by shelling out their hard earned and saved money. Thanks to Globalisation.
That is not good news Khadilkarprakash--I wish these big banks, especially BOA and Shitti Bank would be allowed to fail. Yes it would be hard, but as you say, it is hard now. They should not be bailed out.
I never knew all this about credit cards. I always thought the devil had been around since the beginning of time but apparently he just was birthed after WWII. Thanks for a great Hub.
Thanks for stopping by tdarby! I think the Devil maybe just changed his clothes after WWII--And put them on his charge card!
Your last comment about Shitti Bank had me cracking up, thank you! It is interesting to note that in my home country of the Netherlands, (I'm still a citizen there even though I have been a permanent resident here for 20+ years), using credit was unheard of when we left in 85. Now, along with Burger King and McDonalds, we are coming up to the American standard credit debt, it's very sad to see. There is a reason that the Bible strongly advises against borrowing, it usually ends badly, and that can be seen today as the majority of Americans are permanently in debt.
I was so stupid, I paid off all my debt last year and swore that I wouldn't get back into it, and thinking that buying a motorcycle would be a good thing for gas savings, I did it again.
I would say that going into debt for a house or education and maybe transportation are the only reasonable debts we should participate in, but if no one would buy into debt for those things, I think would quickly see prices come down to the point that people are able to save up for houses, education and cars. It's a vicious cycle.
One query: I am not a big fan of the current administration, but what is wrong with the previous Senator from Delaware being the Vice President? I understand the connection you are making, but I think it is wrong to assume that he is going to undermine his national position just because he has a relationship with a former post. Call me naive, but has he done something to warrant that worry?
Great hub, thanks for the history lesson, I didn't know how and when it all started. It sounds like Visa and Mastercard were heroes in pursuing regulation for the industry, but I guess that would be like calling suicide bombers heroes when they kill innocent civilians, (sorry for the extreme example).
Hi Alexander, good point about Biden. I actually like Joe Biden a lot, even when he was still a senator I liked him. I do think most of Congress is in the tank for the financial industry though, but you're right, if I don't come up with facts, it's just paranoia. You know what they say though, "Just because I'm paranoid doesn't mean people aren't really out to get me."
I think things have gotten weird enough at this point where even borrowing money for a house or an education might not be such a good idea. If you count up how much money a mortgage costs and put that into your pocket instead, that's a lot of money. Also, kids are getting out of college now with 30k in debt and competing for minimum wage jobs. So how nuts is that?
Something needs to change, I think. It's all just gotten too far out of hand. Thanks for your thoughts.
Todays New York Times:
Senate Rejects Limit on Credit-Card Interest Rates
Let’s hope Obama does not sign this bill unless the interest rates are capped. The 60 Senators voting against it are probably receiving large financial rewards. Once again, corrupt capitalism at work...
Mindless Brute & Nancy, that doesn't shock me one whit. All this taxpayer money out the door, and not one protection for us. It makes me sick.
Great article, Pam. I am adding this link to http://www.dontpaycreditcards.com I believe that the rates above 12 percent are killing the consumer.
Ok it is added. Thanks Pam for the lesson in Usury.
Who Invented Credit Cards
Very nice hub. I really enjoyed it.
Thank you for a very informative history lesson. This is a sordid history, and it needs to be brought to light. I am a new fan of yours.
Thank you James. It's even worse in other nations. Currently BOA is soaking the thirid world outrageously. Check out Jerilee Wei's recent hub about it:
http://hubpages.com/hub/When-It-Is-Too-Much
It will make you sick. It did me. Thanks for commenting.
I don;t get it.... You have to charge on a credit card.... no one made any one... you itme you buy are paid for by the bank.... then don;t buy what you can;t afford thenm you don;t have to bitch about banks Commen Sense people this is why we are having problems let blame everyone else for our bad finicail sitiutation.....
Here's a thought. Pay off your bills monthly and never get charged interest.
This was absolutely informative...thanks for sharing!
Really informative article, thanks for the great information!
Thank you for the hub. I haven't looked at last quarter's reports, yet. But,I think it's interesting to point out that retailers such as JCPenny's, Sears, Macy's, and Target have been making more from their credit card services than through merchandise sales.
Yes, I don't think people are buying like they were before the crash. Everyone is pulling in, which just leaves interest income for the retailers.
I wondered where and why the usury laws disappeared! Extremely interesting! I love this information!
And it is important to note that the retailers do make more from their credit card sales than through merchandise!
Thank you very much! 5 Stars! See history is critical in understanding!
AshleyVictoria says:
6 months ago
What an informative article. I wonder if the owners of the dogs used the dogs credit car if they would have to pay the balance. They could argue that the dogs name was on it and therefore the dog had to pay.
And I stick to check cards. My credit card scares me. I can get violent on a credit card shopping spree. Once it's out it doesn't get put away!