- Historic Sites
Credit Card America
How we became a nation of instant, constant borrowers
November 1991 | Volume 42, Issue 7
When the prime rate hit 20 percent in the early 1980s, the banks found that consumers didn’t mind paying rates of 18 to 22 percent on their credit-card balances. The high market interest rates came down before long, but credit-card rates stayed high. The banks discovered, as they had with annual fees, that people didn’t terribly mind paying more for their credit cards. As Saul Haskell of Institutional Investor writes, “The miracle for which all card issuers should be grateful is that consumers didn’t storm bank offices and demand that rates be lowered along with the cost of funds.” What the stubbornly high interest rates have accomplished is to attract many new players into the credit-card arena, forcing those already there to counter with increasingly imaginative marketing strategies. Sears introduced its Discover card, the first major competitor to MasterCard and Visa in years, in 1986, with no annual charge and a guaranteed annual rebate to consumers of up to 1 percent of their purchases. Some of the other incentives Discover offered its early takers seemed odd—discounts on meals at Denny’s restaurants and half off a psychiatric exam—but fifteen million people signed up in little more than a year, despite a higher-than-average interest rate of 19.8 percent.
American Express added a new twist, the premium card, when it launched the Gold card in 1966, but the idea didn’t really catch on until the eighties. Gold cards from Visa and MasterCard (and, since 1990, Discover) usually offer lower interest rates and higher credit limits than the ordinary bank card, but the real attraction is, of course, something else entirely. As a top executive of a New York brokerage firm admitted in 1982, “If you want to know the honest truth, I have a Gold card because of the status… I use it because it looks neat.”
As Gold cards proliferated widely in the eighties, their glamour inevitably started to fade. This particularly concerned American Express, which had long based its marketing appeals—and justified its higher annual fees—on prestige. To keep ahead in cachet, the company came up withthe Platinum card, exclusively for “cardmembers” who charge more than $10,000 a year. By 1985 more than fifty thousand Americans had Platinum cards, and they were paying $250 a year for the privilege. In 1989 the fee went up to $300.
That stiff tariff wins Platinum’s holders a host of personal services. American Express representatives search the world for hard-to-find gifts, pick up belongings left behind by travelers, and arrange members-only entertainment offers like Tony Awards parties with the stars. If a Platinum cardholder falls ill while traveling, he or she can request free assistance—and even, if necessary, free medical evacuation home to America.
The proliferation of Gold and Platinum cards in the 1980s generated rumors of an ultimate, highly exclusive, never publicized Black card. Carried by the likes of Adnan Khashoggi and Imelda Marcos, it allows you to demand private shopping sprees at some of the world’s most exclusive stores or to summon a helicopter to pick you up in the middle of the Sahara. Michael Lewis, the author of Liar’s Poker, spread the story when writing for The New Republic in 1989. American Express vehemently denies the existence of the Black card. Platinum, they insist, is as potent a card as they offer.
The persistence of the Black-card myth suggests the social importance credit cards have taken on for so many of us. As one business writer puts it, “To have one’s credit cards cancelled is now something akin to what being ex- communicated by the Medieval church meant.” Another form of credit-card mortification has added a phrase to the language: being maxed out. And having your credit card refused—rightly or erroneously—has become a major social embarrassment instantly familiar to almost anyone. A typical story is that of an urbane New Yorker several years ago who accidentally picked up a friend’s American Express card and didn’t realize it until weeks later, when he innocently presented it at Brooks Brothers long after it had been reported stolen. He was nearly led away in handcuffs. Having your own card swiped can be even more troublesome—or could until regulatory protections were established. A Florida woman named Lottye Carlin spent eight years fighting the Southeast Banking Corporation over $2,064.35 billed to her for charges she hadn’t made on a MasterCard she hadn’t asked for. She was turned down for a mortgage on a condominium she wanted and spent $8,000 in legal fees but ended up winning $150,000 and a written apology from the bank.
Nowadays there is almost nothing you can’t use a credit card for. “Escort services,” among other illegal businesses, accept them. Doctors and dentists love them. One of the most successful advertising campaigns in American history involved MasterCard and dentists. MasterCard put an ad in the Journal of the American Dental Association showing a man and a woman sitting at a desk going over their bills and looking distressed, the man holding up one bill and saying, “It’s the dentist; he can wait.” The ad had a coupon for further information, and it generated one of the best responses of any coupon ever.