It's one of the most wonderful times of
year for the banking industry's most lucrative business:
credit cards. In the coming weeks, millions of Americans
will reach into their wallets and use plastic to buy an
estimated $100 billion in gifts for the holidays. But at
FRONTLINE' and The New York Times join forces to
investigate an industry few Americans fully understand in
"Secret History of the Credit Card," airing Tuesday,
November 23, at 9 P.M. on PBS (check local listings). In
this one-hour report, correspondent Lowell Bergman
uncovers the techniques used by the industry to earn
record profits and get consumers to take on more debt.
"The almost magical convenience of plastic money is
critical to our famously compulsive consumer economy,"
Bergman says. "With more than 640 million credit cards in
circulation, the U.S. economy has clearly gone plastic."
Millions of Americans use credit cards to make ends meet.
Others, like actor and author Ben Stein, use plastic
purely for convenience. While it would appear that Stein,
who says he charges a small fortune every month on his
credit cards, is the ideal customer, in reality, he is
what some in the industry call a "deadbeat." That's
because he pays his balance in full every month.
The industry's most profitable customers, the ones being
sought by creative marketing tactics, are the opposite of
Stein; they are the revolvers: the estimated 90 million
Americans who carry monthly credit card debt.
Ed Yingling, executive vice president of the American
Bankers Association tells FRONTLINE that "revolvers are
the sweet spot" of the banking industry. This "sweet spot"
continues to grow as the average credit card debt among
American households has more than doubled over the past
decade. Today, the average card-carrying American
family owes a record $7,500 on their credit cards. This
debt has helped generate record profits for the credit
card industry, nearly $30 billion just last year.
Some experts say the profitability of credit cards really
began twenty-five years ago, when the banking industry
successfully eliminated a critical restriction: the limit
on the interest rate a lender can charge a borrower.
Deregulation, coupled with a revolution in technology that
enables the almost real-time tracking of personal
financial information and the emergence of nationwide
banking, has facilitated the widening availability of
credit cards across the economic spectrum. But for some,
the cost of credit is often far greater than it appears.
According to Harvard Law Professor Elizabeth Warren, the
credit card companies are misleading consumers and making
up their own rules. "These guys have figured out the best
way to compete is to put a smiley face in your
commercials, a low introductory rate, and hire a team of
MBAs to lay traps in the fine print," Warren tells
Much of the industry's profit, critics say, is derived
from what they call deceptive new tactics used to add to
the bottom line. Spelled out in a credit card contract,
the terms and conditions of which can be changed at any
time for any reason with fifteen days' notice, these
tactics are often triggered when consumers hit an
unanticipated bump that makes them particularly
"[Banks are] raising interest rates, adding new fees,
making the due date for your payment a holiday or a Sunday
on the hopes that maybe you'll trip up and get a payment
in late," says Robert McKinley, founder and chairman of
Cardweb.com and Ram Research, a payment card research
firm. "It's become a very anti-consumer marketplace."
American Bankers Association spokesman Yingling defends
industry Practices. Because the credit card business is
basically unsecured lending, he says, the risks associated
with the business must be offset.
But that's of little consolation to consumers. According
to the Better Business Bureau, credit card and banking
companies are together the subject of record numbers of
complaints. "It's not an accident that the banking and
credit card business generates more complaints nationally,
across the country, than any other industry....Out of one
thousand industries that we track, they are number one,"
says Pat Wallace, head of the San Francisco Bay Area
Better Business Bureau. "There are irritated, unhappy,
dissatisfied customers in this industry."
As Professor Warren sees it, the industry is operating
without fear of penalty. "There's no regulator, and
there's no customer who can bring this industry to heel,"
Despite the number of consumer complaints, the ability of
state and local governments to investigate the credit card
companies has virtually been eliminated. That's because
the federal regulator for the banks that issue the
majority of the credit cards, the Office of the
Comptroller of the Currency (OCC), has been engaged in
what some describe as a "turf battle" with the states. The
OCC has fought
aggressively in courts and Congress to blunt state
consumer protection laws and curb enforcement actions,
sparking a nationwide battle.
New York State Attorney General Elliot Spitzer has united
with his counterparts from all fifty states in opposition
to the OCC. "We get thousands of complaints every year
about credit card issues...but increasingly over the past
number of years what we have heard back from the major
banks is that we don't need to deal with you."
Is the OCC doing enough to protect consumers? Julie L.
Williams, the acting comptroller of the currency, tells
Bergman, "We have a wide range of enforcement tools, and
we have the ability to directly affect what the banks do."
The OCC points to advisories they have issued to banks
warning about unfair Practices, but to date, most of the
Practices continue among top issuers. Critics believe the
OCC's primary mission, to keep the banks sound and
competitive, helps explain its scant record of public
enforcement actions to protect consumers.
In Congress, Senator Chris Dodd has tried numerous times
to introduce legislation to curb industry Practices, but
every one of his attempts has failed. Dodd says that the
credit card industry "has become very, very powerful. And
it's very successful in defeating every legislative
attempt that's been made over the last several years to
inject some responsibility on the part of this industry."
Banking spokesman Yingling makes no apologies. "Those are
bad bills," Yingling says of the most recent legislation,
"and we'll continue to do our best to block them."
In the meantime, consumers may find themselves on their
own when it comes to dealing with problems with their
credit card company.
"Secret History of the Credit Card" is a FRONTLINE
co-production with The New York Times.
The producers are David Rummel and Nelli Kheyfets. The
writers are Lowell Bergman and David Rummel. The
correspondent is Lowell Bergman.
The executive in charge for The New York Times is Michael
Oreskes. The director of television programming is Lawrie
Mifflin. The reporter for The New York Times is Patrick
FRONTLINE is produced by WGBH Boston and is broadcast
nationwide on PBS.
Funding for FRONTLINE is provided through the support of
PBS viewers. Additional funding for
"Secret History of the Credit Card" is provided by The
Nathan Cummings Foundation.
FRONTLINE is closed-captioned for deaf and hard-of-hearing
FRONTLINE is a registered trademark of WGBH Educational
The executive producer for FRONTLINE is David Fanning.
Erin Martin Kane
FRONTLINE XXIII/November 2004
About the ICFE:
The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation). The ICFE is dedicated to helping consumers of all ages to improve their spending, increase savings and use credit more wisely.
The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its education programs and Resources. It publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.
The ICFE became an official partner with the Department of Defense/Financial Readiness Campaign in June of 2004.The ICFE was an active partner in the California Student Debt Resource Awareness Project (CASDRAP) which resulted in a new web site: (studentdebthelp.org). CASDRAP disbanded in 2010, shortly after the web site project was completed. In 2011 the ICFE assumed the single sponsorship of the (studentdebthelp.org) web site and is now responsible for its content and operation.
The ICFE is also an on-line help for consumers who spend too much. ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.
Visit the ICFE's other web sites at: www.financial-education-icfe.org and studentdebthelp.org. Both sites helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G, a free eNews, and an online resource center for students, parents and educators, plus financial education learning tools and a book store.