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Credit Card America
How we became a nation of instant, constant borrowers
November 1991 | Volume 42, Issue 7
Public Law 91-508, signed by President Nixon in October 1970, prohibited credit-card issuers from sending cards to people who hadn’t requested them. By then the banks had already penetrated most markets fully enough to be grateful for the chance to end a competitive practice that had cost them millions in bad debts and fraud. The law also all but eliminated cardholder liability for charges on a card reported lost or stolen. But woe to the consumer whose bill was in error or who wanted to withhold payment on unsatisfactory merchandise. No matter how just the customers’ complaints, the issuing banks could—and often did —slap a bad credit rating on them if they failed to pay the full bill during the dispute. That practice was outlawed in 1974, by the Fair Credit Billing Act, which set standard procedures for resolving billing disputes.
Credit cards have not only replaced cash for most purposes, they have also in effect created cash.
Women, meanwhile, had become increasingly vocal about their particular difficulties with credit cards. In April 1974 Cynthia Holmes applied for a bank credit card both in her full name and as C. E. Holmes. Without explanation the bank rejected Cynthia and sent C.E. a card and a “Dear Preferred Customer” letter. Married women often couldn’t obtain credit in their own names even if they had good jobs or were the sole support of a household.
The Equal Credit Opportunity Act, passed in 1975, imposes penalties of up to $10,000, plus damages, on credit issuers found guilty of sex discrimination. Amendments to it have broadened the law to prevent credit discrimination on the basis of race, color, religion, national origin, age, or even reliance on public assistance. Credit-card rejection must now be accompanied by a specific explanation, and the applicant can appeal.
Denial of credit is a truly serious problem in an age when credit has become more widely accepted than any other form of payment. By the early 1970s credit cards had evolved into a form of identification, a proof of credit-worthiness, and a travel necessity of undreamed-of power. It was a sign of the times when in 1973 a physician arrived at a Boston hotel intending to write a personal check for his bill and was told there were no rooms available—until he pulled out a credit card. Then he got a room immediately.
Aggressive marketing of both bank and T&E cards helped ensure the proliferation of outlets for credit-card spending. The new uses that sprang up for credit cards in the late sixties and early seventies included church collections in Vermont, bail bonds in Arizona, and gynecologist’s bills in Denver. For a time taxpayers in ten states could even charge federal income tax payments of up to $500 on Master Charge or BankAmericard. But the cards still weren’t a consistent moneymaker for the banks. The problem was, too many people paid up in full every month, especially people with higher incomes, who tended to think of the cards as merely a convenience. Bankers came to realize that the ideal credit-card customer was, as Fortune put it, “the gainfully employed on the lower end of the income scale, to whom a $500 line is a great boon.”
In January 1973 the Marquette Bank, in Minneapolis, became the first bank to pad its revenues with an annual fee. Before long the yearly fee was ubiquitous. In a bold move in 1976 Citibank began charging a monthly fee to cardholders who settled in full. “We want to make the freeloaders pay,” declared an unnamed Citibank executive. But the policy created such a storm of negative publicity that the bank dropped it two years later.
Citibank also pioneered the massive out-of-state directmail campaign, in 1977, reaching an estimated twenty-seven million homes in its opening salvo. The mailing was timed to occur just as BankAmericard, in an effort to broaden its appeal, especially overseas, became Visa. Citibank’s letter pointed out that “Visa is replacing BankAmericard.” BankAmericard’s banks complained that this was an attempt to mislead BankAmericard customers into thinking their cards would soon be useless. Whatever the reason, the mailing was a success, and it began the seemingly endless stream of bank-card solicitations we find in our mailboxes today. Nowadays over a billion credit-card offers are sent out each year—to people who already possess an average of 2.9 Visas or MasterCards. (Master Charge became MasterCard in 1979, to dispel what its president, Russell Hogg, called “the tinge of the blue collar.”)