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Credit is king
By SCOTT BARANCIK, Times Staff Writer In 1965, Bank of America gave a woman a credit card with instructions to live on it for a month. What was then a publicity stunt to prove the cards were useful has become an everyday reality. Credit cards are so widely accepted today -- and, for most consumers, so easy to get -- that the average cardholding home in the United States has six cards and owes more than $8,500 to the plastic gods. Floridians alone owe $41.3-billion, according to CardWeb.com, which studies the industry. And an estimated 82 percent of U.S. households are cardholders. It's a trend that has brought convenience but also trouble. Some lawmakers blame irresponsible credit card use for the rise in personal bankruptcies. Consumer advocates blame banks for wantonly peddling the cards like some licentious Pied Piper. Lost in the debate is a simple fact: The only thing worse than having a major credit card in modern society may be not having one. Once considered a mere convenience, the credit card has become the equivalent of a consumer passport (thus "Visa"). Cross the threshold into many business establishments without one and you're likely to suffer delays, pay extra fees or be denied service. Just try renting a car, booking a flight or making an Internet purchase without one. "It's like the whole American society is wrapped around credit cards," said Steven Hastings, a 37-year-old firefighter and paramedic from New Port Richey who cut up his debt-riddled cards two years ago. Now, he and his wife, Susan, a physical therapist, are among the nation's estimated 19-million cardless households. Corporate executives defend their preference for credit cards over other forms of payment. Rental car companies say the card serves as collateral. If a customer returns a vehicle damaged or late, they say, they have the ability to bill his or her card. "We're turning over an asset that may be worth $20,000 to $50,000," Hertz Corp. spokesman Richard Broome said. Best Western International and other hotel chains say customers would run roughshod over them if a credit card weren't required. Some customers might guarantee a room, then never show. Others might stay several nights, then skip the bill. By holding the customer's credit card, the hotel gains much-needed leverage. Other businesses cite security reasons for avoiding cash, such as to discourage armed robbery. That's why FedEx Corp. service centers in the Tampa Bay area and many other cities decided not to accept greenbacks. "No package is worth the life of an employee," spokeswoman Sally Davenport said. No matter why a business requires a credit card, the impact on consumers is the same. "Cash is becoming irrelevant, even unseemly," Michael Walker wrote in the Los Angeles Times in 1996. "The medium of exchange of last resort, the coin of the disenfranchised, criminal or eccentric." Consider the cardless person who wants to visit family during the holidays and buy gifts for friends. AIRLINE TICKETS: Seats can be reserved over the phone. But to pay with cash or a personal check, a traveler must drive to Tampa International Airport, pay for parking, wait in line at the ticket counter and show two forms of government-issued identification, all within 24 hours of making the reservation. Travel agencies offer an alternative, but the traveler still must go there in person, and some charge processing fees. AAA Auto Club South in St. Petersburg charges nonmembers $15. RENTAL CAR: Some rental agencies accept cash as payment; some don't. Virtually all require a credit card before letting a car leave the lot, even if they'll let you settle with cash when you turn it in. There are exceptions. Hertz lets customers use cash as collateral if they pass a credit check. But the one-time application costs $15 and takes 30 days to process, so it's necessary to plan ahead. Once approved, the customer can take a car off the lot by depositing $250 or 150 percent of the expected total bill, whichever is higher. Enterprise Rent-A-Car also accepts cash as collateral, provided the customer passes a free, same-day credit check. The customer must provide a local driver's license, a local utility bill, an employer's name and phone number, and a bucket of money. The required cash deposit is $200 plus the expected total bill. ONLINE PURCHASES: Many consumers in a rush to buy last-minute holiday gifts turn to Amazon.com, the world's largest online shopping site. But those who lack a credit card, or a debit card that bears a major credit card company logo such as MasterCard or Visa, may be out of luck. Amazon does not accept cash under any circumstances. Customers can mail a personal check or money order to Amazon, but purchases will not be mailed until the payment is received and cleared, causing a two- to three-week delay. Gift certificates, computers, cell phones and certain other items can be purchased only by credit or debit card. Ebay.com and many Internet merchants also accept payments via PayPal, an online money transfer system that is free to consumers. To use it, you must have a bank account or credit card. MAIL SERVICES: If consumers can't buy online, they can purchase gifts at local retail stores and have them delivered. The U.S. Post Office accepts cash and personal checks, for example. But only credit card users and certain debit card owners can use FedEx's self-serve boxes. Consider how far plastic has come in a generation. When Bank of America ran its Project No-Dough publicity campaign in 1965, BankAmericard was still available only in California, the company's home state. It chose as its test case Ann Ayleen Foley, described in a news report of that era as "a slender, 24-year-old blonde secretary." A bank vice president acknowledged that Foley would "run into many problems" attempting to get by on a credit card. She moved from a shared apartment into a motel room just to finesse the problem of paying rent and utilities. When BankAmericard was renamed "Visa" in the mid-1970s, the idea of a consumer passport was still more fantasy than real. Since then, consumer tastes have outpaced consumer incomes. Bankruptcy has lost some of its shame. On the business side, everyone from dentists to delicatessens to fortune tellers is swiping cards today, thankful for the accounting ease. All the while, credit card issuers continue to jam mailboxes with come-ons, and not just to the creditworthy. Banks have increased their focus on first-time borrowers and so-called subprime borrowers, people previously shut out of the credit game because of prior missteps. Target populations include college students, immigrants and people with low to moderate incomes who have a job. Richard Schram, quality control manager at the Consumer Credit Counseling Service of Central Florida and the Florida Suncoast, said credit card companies typically pay schools $500 a day for the right to set up application tables at student unions. (Some schools, such as Valencia Community College in Orlando, have discontinued the practice.) Subprime lender Metris Companies Inc., rated one of the nation's fastest-growing companies by Fortune, has teamed with Banco Popular Inc. of Puerto Rico to target Hispanics. All of the customer service agents, and collections staff, at its Orlando call center are bilingual. "I think when you look at some of the ethnic populations, like Hispanics who are trying to acculturate, the sign of having made it here really is getting a credit card, because then they can do most things their Anglo counterparts do," said Joe Hoffman, executive vice president of consumer credit card marketing at Metris. There are opposing forces. Connecticut sued the major rental car companies several years ago. Requiring credit cards, it argued, was a violation of state consumer protection law. Hertz later consented to waive its $15 credit application for cash payment and reduce its normal turnaround time from 30 days to 24 hours, though only in Connecticut. Avis and Dollar Rent-A-Car signed similar agreements. Debit cards, which draw directly from funds in a user's bank account, continue to gain acceptance from business owners as an alternative form of collateral. That's because debit cards that carry the Visa or MasterCard logo offer similar fraud protection to that of credit cards. But many of the consumers who can't qualify for a credit card are likely to lack a bank account, too. In a reprise of the 1965 ad campaign, Visa is paying three members of the U.S. Olympic ski team to use their debit cards exclusively for one year on all purchases over $10, according to American Banker. Ironically, one of the three had applied for a U.S. ski team-branded credit card but was turned down. A growing number of debt-laden cardholders are turning to debt management plans. Firefighter Hastings and his wife came to the Consumer Credit Counseling Service two years ago with thousands of dollars in credit card debt. With the couple's consent, the nonprofit spoke with their card issuers and negotiated a lower interest rate, an extended payment period and a waiver on some late fees. As part of the deal, the Hastingses had to cancel their credit card accounts and ceremonially cut them with scissors. The pieces were placed in one of several large glass jugs that adorn the counseling service's offices. After some initial unease, the Hastings were relieved to be free of their plastic dependence. "I've got more money in my pocket, more money in the bank," Steven Hastings said. "Anything I want to buy, I save up and just pay cash for it." Others find it a more wrenching change. "That's the choice consumers have to make," said Schram of the Consumer Credit Counseling Service. "If somebody came in here with $40,000 in debt and said, "How am I going to take my trip to Cancun?', I'd say, "Maybe you don't want to take that trip.' " -- Scott Barancik can be reached at barancik@sptimes.com or (727) 893-8751.
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From the Times Business report
From the AP
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