Published in: Research | Jan. 6, 2020
By: Amy Fontinelle
The average American credit card holder had four different credit cards in 2019. We've come a long way from when credit cards were invented 60 years ago. How did we get here?
It started in 1958. Imagine opening your mail and finding not just an unsolicited offer to apply for a credit card, but an unsolicited credit card itself, fully approved and ready for spending. That’s how 60,000 people in Fresno, California, received their first all-purpose credit cards back in 1958, writes New York Times reporter Robin Stein.
This wasn’t a one-time event; it became an ongoing practice over the next decade. Cards were reportedly issued to infants and dogs—and fraud was rampant. But card issuers wound up with a sustainable and profitable business that led to the conveniences and headaches of today's plastic payments. Here are some other important milestones in the history of credit cards.
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Over the past 70 years, laws and court decisions had a huge impact on credit cards as we know them today. Here are three of the most important.
In 1978, a Supreme Court decision, Marquette National Bank v. First of Omaha Service Corp., paved the way for higher credit card APRs. Inflation rates were much higher than they are today, and usury laws capped interest rates in some states. Credit card issuers faced going out of business because inflation was so much higher than the interest rates they could legally charge.
The court unanimously ruled that a bank headquartered in one state was only beholden to that state’s interest rate caps (or lack thereof), not the laws of the states where its customers resided. Credit card issuers moved to South Dakota and Delaware. Interest rates increased, but consumers continued to borrow at higher interest rates and still do today.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it harder to erase credit card debt in personal bankruptcy. It introduced means testing to require individuals to repay at least part of their debts through a Chapter 13 bankruptcy if they had the income to do so. Previously, it was easier to completely erase debt under Chapter 7.
The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) required credit card companies to lower their penalty fees and make credit card costs clearer. It also required credit card issuers to make sure applicants, especially those younger than 21, would be able to pay their credit card bills before extending credit.
The goal was to create a more transparent and fair product for consumers. Credit card statements and applications today give consumers information about fees, payments, and interest in a clear way that makes the cards easier to manage.
Credit cards are always evolving. They’ve gone from cardboard to plastic to metal and digital.
Merchants no longer have to phone an issuer to see if a consumer has sufficient credit available. Nor do they use clunky manual machines at the point of sale to make carbon copies of a credit card’s account number and cardholder name. Computers do it automatically in fractions of a second when we dip our cards into card readers or enter their details online.
Small mobile card readers like Square attach to smartphones with ease, allowing small merchants to accept credit anywhere. We hold our phones over card readers at Starbucks to charge our lattes using Apple Pay. The new Apple credit card from Goldman Sachs provides unmatched ease of use and security.
Samsung's Software Point of Sale, or SoftPOS, enables the latest generation of Samsung Galaxy phones to accept contactless credit card payments directly. Merchants don’t have to attach a separate card reader to the phone.
Ocean plastic payment cards, or Second Wave cards, are the first to be manufactured from recycled plastic waste collected from within 31 miles of an ocean. In 2020, American Express will launch a separate initiative to issue cards made from reclaimed plastic from coastal areas.
Two companies, Idemia and Zwipe, are working toward making biometric payment cards widely available by 2021.
Competition and innovation will likely push cards to keep offering more convenient and secure ways to pay, more consumer-friendly features, and better rewards programs. We’re excited to see what’s next.
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