As my credit score continues to climb (my score was in the tank for numbers of years–not because of bad spending habits, but because of business ventures), I have noticed a deluge of credit card offers in the mail. In fact, I have received so many of them that it is almost scary. Needless to say, all of this reminded me of a documentary that I saw a while back on the history behind credit cards. Although I do not remember all the details of that informative documentary, the one thing that stuck out to me was the sad description of how our society transformed from a cash-only environment to a society that practically includes credit limit as part of our annual income.
Anyway, I just found a link to one of my favorite programs (Frontline). Apparently, they did a series on this very topic (maybe this was the documentary that I was referring to). If you have the time, please check it out. It will definitely have an effect on how you view that plastic in your pocket.
Here’s and excerpt—
Millions of American families use their personal, general-purpose credit cards such as Visa, Mastercard, American Express and Discover to make ends meet; credit cards have been a discreet lifeline for families in financial straits.
…The industry’s most profitable customers, the ones being sought by creative marketing tactics, are the “revolvers:” the estimated 115 million Americans who carry monthly credit card debt.
Ed Yingling, incoming president of the American Bankers Association, tells FRONTLINE that revolvers are “the sweet spot” of the banking industry. This “sweet spot” continues to grow as the average credit card debt among American households has more than doubled over the past decade. Today, the average family owes roughly $8,000 on their credit cards. This debt has helped generate record profits for the credit card industry — last year, more than $30 billion before taxes.
Some experts say the profitability of credit cards really began twenty-five years ago, when the banking industry successfully eliminated a critical restriction: the limit on the interest rate a lender can charge a borrower. Deregulation, coupled with a revolution in technology that enables the almost real-time tracking of personal financial information and the emergence of nationwide banking, has facilitated the widening availability of credit cards across the economic spectrum. But for some, the cost of credit is often far greater than it appears.
According to Harvard Law Professor Elizabeth Warren, the credit card companies are misleading consumers and making up their own rules. “These guys have figured out the best way to compete is to put a smiley face in your commercials, a low introductory rate, and hire a team of MBAs to lay traps in the fine print,” Warren tells FRONTLINE. (click here to read the rest of this article).
[click here for the homepage of this series--includes a online video of the whole program!]
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