'Metal money' to plentiful plastic

By PHIL MULKINS World Staff Writer - 10/14/2009


We use them to buy just about everything and worry about them every day, but most of us don't know how they came to be — these credit cards.

A brief history lesson follows, with help from Bill Hardekopf, CEO of LowCards.com.

1914: Western Union begins offering free, deferred-payment privileges to preferred customers using metal cards, marking the beginning of the credit card era. It's believed that modern credit cards are the same dimensions as this original "metal money."

1946: Jon Biggins of Flatbush National Bank in Brooklyn, N.Y., offers Charge-It, the first bank credit card between his customers and merchants. This came about in an era when modes of getting from place to place had become more advanced and accessible, popularizing leisure travel, which lent itself to the convenience of not carrying cash. Also, stores began issuing credit cards, making consumer goods easier to buy.

1950: The first Diner's Club charge card is issued by Frank McNamara, manager of a New York loan company. This first nationwide credit card network covered the expenses of traveling salesmen who wined and dined clients. The cards were paper, no interest was charged and users paid $3 annually. Restaurants taking them paid a transaction fee.

1958: American Express offers its charge card for travel and entertainment expenses, and in 1959 upgrades from cardboard to a more durable plastic card. The revolving balance was born around this time, letting cardholders pay bills in full at the end of each cycle.

1966: Bank of America introduces the first general purpose card, BankAmericard. This occurred in an era when federal regulations kept banks from operating across state lines. BofA wanted to expand and licensed BankAmericard to banks outside of its state of incorporation. Business grew but became complicated and difficult to manage. BofA spun off BankAmericard as a separate entity that became the Visa network in 1976.

1966: The InterBank Card Association, a national card issuing system, is started by national banks and later becomes MasterCard. Banks issuing cards had to join either the Visa association or the MasterCard association but later were able to join both and offer both cards. This brought standardization and processing systems that reduced costs and promoted growth of the credit card industry.

1968: Federal regulation of the credit card industry begins with the Truth in Lending Act, which requires issuers to disclose all terms and conditions. Later, Congress banned mass mailing of active credit cards to people who had not requested them.

1970: A credit scoring system for issuing bank credit cards is introduced by Fair Isaacs Corp. The Federal Reserve reported that demand for credit cards was increasing with urbanization and mass production, but growth was stifled by insufficient data about the credit worthiness of individual consumers. This changed with the emergence of national credit reporting agencies and the FICO credit scores based on consumers' credit histories. It helped make credit cards more widely available.





Issuers, laws change course of credit cards

Credit card regulations and issuers' policies have evolved over the years. Some critics say the latest changes could scuttle the nation's economic recovery.

1978: The Supreme Court rules that banks can charge any rate allowed in banks' home states — not just rates allowed in cardholders' home states. Major banks move credit card operations to South Dakota and Delaware, which have no interest caps. This allows issuers to set rates higher. The ruling transforms the issuing of credit cards into a highly profitable industry.

1980: Inflation drives families to take on twice as many credit cards, and spending via credit increases five-fold to $2,700 per household. President Jimmy Carter, struggling to tame inflation, puts a freeze on soliciting new credit card accounts. Issuers react, adding $20 annual fees to old accounts. These remain in place long after inflation subsides. In the 1980s, the "Reagan revolution" deregulates the banking industry through the Depository Institutions Deregulation and Monetary Control Act.

1990: Issuers use credit scores and financial data to develop pricing and credit strategies for the good, the bad and the out of control. They set rates and limits based on computer assessments of each holder's default risk — the higher the risk the higher the rate. This increases credit limits, decreases minimum payments and expands credit debt.

1996: The Supreme Court rules that fees should be included with the term interest and can be whatever the bank's home state allows — an opportunity for issuers to charge higher fees and new fees, such as over-the-limit fees and "universal default."

2007: Three in four families have credit cards and 46 percent carry balances — the mean balance being $7,300.

2009: In May, the Credit CARD Act passes, creating new regulations for the industry. Part of it took effect Aug. 20, but other sections won't until Feb. 22. Many credit card issuers have preempted the act by raising their rates and lowering credit limits. FICO reports that credit card issuers have cut credit limits for 58 million cardholders. Many issuers also have raised minimum payment percentages to 5 percent, dramatically increasing monthly payment amounts to levels that threaten many consumers with default.





Tulsa World consumer writer Phil Mulkins wants to know which topics interest you most. Call 699-8888 or e-mail your interest to phil.mulkins@TulsaWorld.com or mail it to Tulsa World Consumer, PO Box 1770, Tulsa OK 74102-1770.


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Tulsa World Reader Comments
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FUTURE WORLD, Tulsa (10/14/2009 11:35:07 PM)
The way things are looking for the airlines, they might return to the cash only policy.

Thunder196, Tulsa (10/14/2009 11:27:36 PM)
My brother in law was one of those who sell snowballs to Eskimos. Years ago airlines would not take credit cards, they wanted cash. My brother in law always talked them into letting him charge his air line tickets. Now airlines won't take cash, you have to have a credit card. . How times have changed.



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