Credit Cards » Credit Card News » Time Line of Credit Cards
Date May 2, 2009

Time Line of Credit Cards

In 1949, Frank X McNamara, shared a meal with two friends. When he reached into his pocket for his wallet so that he could pay for the meal (in cash), he discovered that he had forgotten his wallet at home.  He called his wife to bring him some money – and suddenly a  new idea was born.  A credit card that could be used at multiple locations and not require someone to have cash on them. Previously, retailers had their own credit cards and made money out of the loyalty of the cardholders, since the cards could only be used at their locations.

McNamara’s credit card, the Diners Club, would need a different method to make money since they wouldn’t be selling anything.  Restaurants and retailers who accepted the Diners Club credit card as payment were charged a 7% fee for each transaction, and the cardholders were charged $3 annually (starting in 1951).

The first Diners Club credit cards were given out in 1950 to 200 people- who were mostly friends of McNamara.  The card was accepted in 14 restaurants in New York, and were made of paper.   It was hard to get retailers to agree to accept the card because they saw it as competition for their own credit cards, and customers didn’t want to bother with the card unless there were a large number of retailers who would accept it as payment.

The credit concept grew and by the end of 1950, more than 20,000 people were using the Diners Club credit card.
Competition for credit cards began in 1958, when Bank Americard (later called Visa) and American Express both started offering their own credit cards.

In 1975: Citibank adopts “plain language” contracts, and decreased the loan agreements from 3,000 words down to 600.

In 1983: The governor of South Dakota, Bill Janklow, signed a state law that allowed credit card contracts the  ability to change at any time and for any reason. This explains why the majority of credit card companies operate out of South Dakota.

In 1988: The Federal Truth in Lending Act was amended to include more specific contracts.  Credit card companies responded by offering pages and pages of complicated fine print.
During the MID-1990s: Financing and credit cards are offered to riskier borrowers with low introductory rates and steep fees and penalties.  Capital One and several non-bank institution finance firms lead the way with these offers.

In 2000: The larger banks use their “change-in-terms” clauses provided in 1983 to increase interest rates on good borrowers in order to recover from losses of customers not paying their credit card bills.

In 2005: Questionable mortgages with “teaser” rates are given to people who are not likely to afford the homes, and more credit cards are given out.

In 2008: The Fed adopts new restrictions for credit cards that go into effect in July 2010, with separate legislation designed to protect cardholders from many issues under the “Credit Card Bill of Rights”.

Date April 29, 2009

Visa Commercials Promote Debit Cards

Visa has noticed the trend of increased debit card use during this recession. They’re running several TV ads that promote Visa debit cards for everything from buying pizza, going to an aquarium with your daughter on a Tuesday, and paying for products online.

On April 29th, Visa Inc. reported that their branded debit card total dollar volume of purchases surpassed credit card purchases for the first time during the last three months of 2008 – making the debit card transactions processed by Visa 50.4% of their total transaction volume in the same period.

It’s no mystery why consumers are turning to debit cards over credit these days. Consumers are becoming more conscious of their spending, and people don’t want to rack up any more credit bills if they can help it. Debit cards are popular over cash use, because American consumers have a preference for the convenience plastic provides – beginning in 2003, credit and debit card purchases bypassed cash and check purchases.

“A big group of consumers like the discipline that debit spending can bring them, and that is particularly relevant in this kind of environment,” said Tim Murphy.  Murphy looks after MasterCard Inc.’s main payment products.

Unlike credit cards, which allow consumers to charge more than they can afford to pay when the statement comes and carry the balance from month to month, debit cards only let you spend what you have in your checking account. A Nilson Report provides data for the increase of debit cards since 1987:

nilson

Banks are helping to encourage debit card use through the offering of rewards programs. While debit card rewards programs are not as generous as most credit card programs – it’s still a good incentive that helps people choose debit over credit. Credit card use is expected to decline even more, as Americans continue to monitor and rein in their spending habits.

Date April 17, 2009

Can We Live in a World Without Credit Cards?

About 25% of Americans living a cash-only lifestyle prove that it is in fact possible to live a life without credit cards. For the rest of us relying on the convenience of credit cards and the access to money when we may not have the cash flow available – we wonder how it’s possible to sustain a life in these modern times without using plastic.

The creators of the FICO credit score, Fair Isaac Corporation, claims approximately 20 to 25 million people in the US do not have credit, with another 35 million living in the US with a very limited credit history. These numbers boil down to some surprising statistics: one in every five Americans do not have access to credit.

cut-up-cardsOf course, there are two groups of people in the category of non-credit card users: people who don’t have credit cards because they don’t want them; and those who just can’t get credit cards because they have bad credit, or due to their immigration status, or other reasons.

The Federal Reserve Board Survey of Consumer Finances of 2004 showed that 58% of households having credit cards had balances on their cards. With the current state of the economy, studies have been showing that the use of credit cards is declining (whether that is due to inability to get new credit or a desire to avoid getting into (more) debt is unknown).

“In college, I got my first… and second… and third credit card. Every where I turned their were people set up on campus giving away free stuff if we applied for their credit card. I mainly used my credit cards to fill in where student loans left off and my own income wasn’t quite enough when it came to paying for college tuition and required textbooks – but after four years of relying on the credit cards to fill in those gaps, I graduated with about $6,000 in credit card debt,” says Stacy Jamezegour. “The credit card debt was on top of the $45,000 in federal and private student loan debt!”

Jamezegour goes on to explain that some of the credit card debt also came from repairing the vehicle she used to get to and from work and college – since all of her full-time income was paying for college and living expenses she was unable to establish an emergency fund. She believes that she would not have been able to finish college had she not had credit cards available to “fill in” the gap of what she needed to pay and what she had available through student loans and her income.

Others who have used credit cards and then paid them off later vow never to go into credit card debt again. They are able to live a credit-free lifestyle, and once adjusted, say there is really no need to carry a credit card in your wallet. “I used a home equity loan with a low interest rate to pay off my high interest credit card debt,” Jason Michaels explains, “instead of making multiple payments to several credit card bills each month, I just make one, lower payment. I will never use credit cards again.”

Like many people who have sworn of credit cards after bad experiences or have decided never to use them in the first place, Michaels uses a debit card with a MasterCard logo connected to his checking account to handle any purchase that would traditionally be done on a credit card – like reserving a hotel, or to pay for items online or by phone. This counters the argument of credit card users that you really need them for certain expenses or reservations.

Credit card companies have made billions upon billions of dollars off consumers using credit cards incorrectly. As people began relying on credit cards as “additional income”, forgetting that it would have to be paid back, or otherwise allowing the debt to become too much to handle – interest payments and over-the-limit fees and other finance charges we a welcomed result by the industry. As consumers become more knowledgeable and take better control over their financial situation – consumers and credit card companies alike may discover that it is in fact, possible to live in a world without credit cards.