1. Credit cards have been in existence since the 1950’s. Bank of America introduced the “BankAmericard” in the late 1950’s in Fresno, CA. The bank issued cards to residents in a direct mail campaign (at the time they sent the actual credit card, not an application) and encouraged merchants to accept the card.
2. Before the first credit card introduction in Fresno, there was always a problem of users and merchants. There were never enough users to encourage merchants to take the cards and therefore it fed back into the cycle because users weren’t encouraged to pick up a new financial product if no one would take them. By a mass mailing, Bank of America solved this problem and established the “first consumer credit card”.
3. Before the the mass mailings were outlawed in 1970, banks did many of these “drops.” The introduction of direct mailing credit lines was marred with mistakes and addiction. People could buy with the credit they were given and this encouraged some individuals to go into debt. Additionally, credit card fraud also took place with persons receiving credit lines intended for other individuals in the mailing.
4. The first credit cards were issued by individual banks – and processed by individual banks. This caused confusion and massive inefficiencies as each bank had to settle debts with the other banks when their customers used their card. There was no centralized system to process payments, debits, and credits between any of the parties. Merchants had to send physical letters to different banks to request money and manually “keep the books” of the payments they sent and which were received.
5. Visa and Mastercard became the two centralized processors in the United States when their member banks merged to create a more efficient and fair process by having these companies act as “middle-men.” This allowed companies to lower their book-keeping costs because they would act as the interchange. Merchants paid a fee to Visa and Visa would pay the merchant with money from the customer’s bank. The customer’s bank in turn would bill the their customer at the end of the month for the purchases made.
6. While there had been charge cards and various iterations of credit cards in the US financial system before the “modern” credit card, the concept of a revolving credit line for an individual consumer was novel. Large scale purchasers sometimes had an imprinter to “charge” purchases, airlines had cards for airfare, and diner’s club had a charge card in existence. However, after VISA and Mastercard centralized payments making it much easier to accept and use, credit cards became a transaction medium.
7. Concurrently with the rise in use of credit cards, outlawing drops, and attempting to identify customers using their ability to repay, the United states passed the Fair Credit Reporting Act in 1970. This allows consumers to dispute items on their credit report which affect their ability to borrow and imposes restrictions on companies that use and issue credit reports, as well as the permitted use of credit reports.
8. A consumer could not obtain their credit report free of charge until 2003. Congress passed the Fair and Accurate Transactions Act which allows consumers access to their credit report once a year from each of the big credit reporting bureaus (TransUnion, Equifax, and Experian). Consumers may obtain reports online at annualcreditreport.com.
9. Electronic payment systems have revolutionized the use and ease of credit cards. Merchants no longer have to contact their bank which would in turn contact the credit card issuer to authorize the transaction on behalf of their customer. The real-time verification system and worldwide availability has greatly increased the prevalence and ease of purchases and international travel.
10. In the bankruptcy context the merchant whom you purchased good or item from is actually not your creditor. Credit lines are guaranteed by the issuer who pays the merchant for the good up-front. This allows you access to the item and it is paid for as far as the merchant is concerned. The creditor in this case would be the bank or other institution which issued you your credit line/credit card.
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