America's Credit History
CBS
Transcript
Ask around and you may find more credit cards than family pictures in the average American's wallet. The Fast Draw team of Mitch Butler and Josh Landis take a look at our attachment to plastic. The credit card era was born in the economic boom of the late 1940s. Good customers could get credit at individual stores with interest rates around 1%. The goal back then, says Robert Manning, was not to make money from finance charges. The goal of the early cards are really to cement consumer loyalty with the merchant and his clients. And the key point here was to make sure that the client always had access to credit. In 1950, Diner Club issued the first single card that could be used in different places. Interest rates were still very low. The trend caught on, but the industry's growth was limited because each state had laws restricting interest rates, making it difficult for companies to sign up customers in different states. But in 1978, the Supreme Court changed everything. It ruled that a bank could charge the highest interest rate allowed in its home state to customers living anywhere in the US. That's why almost every major credit card company is based in either South Dakota or Delaware, states with little or no interest rate regulation. After the Supreme Court decision, credit cards became the banking industry's single most profitable product. In 25 years, credit card volume has shot up 2,000% to $1.9 trillion. The result, the typical household now has about 11 cards and owes more than $11,000 in credit card debt. Manning says the country now has no choice but to reverse this debt binge served up by banks decades in the making. And it may require help from the government. But when we do, Americans will essentially come out of this recession with a much more balanced approach to life and to the more sensible spending habits we had before credit cards became so cheap and so easy. [Music]