Consumer Payment Card News

Perfect Card

In these tumultuous times of credit cards it is perhaps better to look to the past for the answers for tomorrow. In 1985, more than 90% of U.S. credit cardholders paid a 19.8% interest rate and a $20 annual fee. Late fees, over-limit fees, introductory rates, punitive rates and rewards were non-existent. Compared to today, the credit cards of 25 years ago were plain vanilla. If we went back to those simple days then it is possible that card issuers would have more profits and card users would have less hassles. In the last “normal” year (2007), U.S. credit card issuers generated about $100 billion in interest income and about $30 billion in fee income from credit cards. Today, credit card debt is about $850 billion and there are nearly 500 million general purpose credit card accounts in the U.S. If $600 billion was interest generating, then the card industry would be producing $120 billion in interest income using the 1985 average interest rate of 19.6%. About $10 billion could be produced today in annual fee income at $20 per account. TheTherefore, under the 1985 market issuers would be generating the same revenue as today without giving heartburn to their customers and without ponying up for points, miles and cash-back. In 1985 risk management was better too. Credit limits were generally set at 20% of your gross annual income. If you made $25K then $5K in available credit card credit was tops. In 1985 it was unlikely another issuer would provide you with a card if your available credit was more than 20% of your gross income. No wonder some of the very top card executives are saying they want to get back to fundamentals. Therefore, the “Perfect Card” is perhaps one with a 19.8% interest rates and a $20 annual fee and NOTHING ELSE. It is KISS.

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