What You Don’t Know When It Comes To Charge Cads

March 7, 2010 FTS No comments

It may come to thought that chargecard accounts have always been with around, however, charge cards are a very new invention with a rather scary financial history.

In 1958, Bank of America started the first all-purpose credit card by simply ‘dropping’ 60,000 of them on Fresno California, (by mailing them out to people who had not asked for them).

The idea was to throw in a new kind of revolving credit line, that when using it anyone could buy whatever they wanted and pay the for it over time. Bank of America hoped to cash in on the post-war consumer frenzy, the race to suburbs, and the desire for new appliances, furniture, and everything else.

The Diner’s Card already existed at the time Bank of America created their first credit cards, but that card was mainly used for food and gas by businessmen, salesmen, and upscale professional persons.

The new, all-purpose card envisioned by Bank of America was thought to be great in theory, but it didn’t really blow up at first. During the 50s and 60s, buying on time had a bit of a bad reputation, so many people weren’t immediately lining up for the all-purpose charge 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 credit cards were beginning blow up 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 the holidays, 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 card accounts 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 started. Many representatives in Congress called for the credit cards to be outlawed.

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Instead, the twin overseers VISA and Mastercard came into being to get things under control and create some type of order. They dragged retailers into a national network (thus making the cards easier for consumers to use almost anywhere) and they proceeded to fight fraud and create some basic underwriting standards.

The industry began to stabilize, and the credit cards became much more popular.

However, by 1980 most 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 taking all the profit out of credit cards, which were capped at 12 percent apr while banks were themselves paying rates of up to 20 percent on their own borrowing.

So Citibank approached the state of South Dakota and offered to move its whole credit card operation to there if it would repeal the South Dekota sury law. South Dekota needed jobs, Citibank needed to charge more interest. It was a match made in heaven. (Or hell.)

Once that lid was blown off, credit card accounts became extremely profitable. The state of Delaware soon became another mecca for the credit 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.

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