Money and the Law: Credit Card Companies Can Change Terms with 45 Days Notice | Company
Credit cards are one of the most important financial services inventions of the last century. This is because they allow you to buy things today and pay for them later. Plus, if you pay your bill in full each month, there are no interest charges.
However, despite their usefulness, credit cards have one annoying attribute. Under the federal Truth in Lending Act, card issuers can change the terms of your account simply by sending you a 45-day notice before the change. This includes the annual percentage rate you pay, any other fees and charges applicable to the account, and any “rewards” programs the card issuer may have offered.
If you don’t like the change, your only option is to cancel your account. If you cancel the account, you will be able to pay off your current balance over time. But you will no longer be able to make new purchases.
As a brief history, the credit card industry dates back a long way and has its roots in the hospitality industry. Beginning in the early 1900s, upscale hotels began issuing guest ID cards that could be used to make purchases at the hotel and at nearby merchants. (Does anyone remember the Broadmoor map?)
Then, in 1949, the Diners Club card became the first general purpose payment card. (A charge card, unlike a credit card, requires balances to be paid in full each billing cycle.) Merchants have found that people with Diners Club cards become free spenders and, despite the 7% that Diners Club charged merchants on each transaction, merchants welcomed card-carrying customers.
A decade later, Bank of America created the first true credit card, called BankAmericard. Bank of America authorized other banks to issue the card, but retained control of the network that processed the transactions.
Soon, however, the major card-issuing banks wanted a share of the processing network’s revenue and the Visa system was born. Visa does not issue cards. It controls the brand and the transaction processing system, and authorizes banks and others to issue cards using its brand. In 2008, Visa became a publicly traded company, listed on the New York Stock Exchange.
MasterCard emerged in 1966 as a competitor to Visa. It became a public company in 2006, also listed on the New York Stock Exchange. Like Visa, MasterCard does not issue cards. It authorizes others to issue cards and controls the transaction processing system.
American Express launched its payment card business around the same time that Bank of America launched BankAmericard – in the late 1950s. In 1985, Sears came onto the scene with the Discover Card. After bouncing between different owners, the Discover Card is now owned by Discover Bank, also a New York Stock Exchange company. Discover Bank, unlike Visa and MasterCard, issues cards itself.
To complete the picture, many large merchants, in an effort to avoid paying fees to the credit card industry, have tried to develop their own card programs, with limited success.
But, back to the change in notice terms. It’s important to read all notices of change in terms carefully, then consider whether it’s time to look for another card.
Jim Flynn is with the Colorado Springs company of Flynn & Wright LLC. You can contact him at [email protected]