credit cards

   Though regarded as temptations to extravagance when introduced into the UK in the 1960s, credit cards soon became, at home or abroad (and for telephone orders as well as face-to-face purchases) an acceptable alternative to cash for all but the smallest payments for goods and services, and displaced cheques for many moderate-sized ones. By 1997, over one-quarter of shop and garage transactions were paid by credit card. Credit cards first emerged in the USA, where Diners Card and American Express began as a convenient means of paying travel and entertainment expenses. Banks and, more recently, building societies act as agents for such card providers as Visa and MasterCard, recruiting their customers as credit card holders. On paying a small annual fee and after a check on their creditworthiness, they receive a small plastic card personalized by both identification numbers and a magnetic strip or microchip. Instead of tendering cash or a cheque, purchasers present their card and sign a voucher on which details are recorded manually or electronically. The credit card provider then bills them monthly for all their credit card expenditure. Provided holders respect a previously agreed upper limit and clear their debt within the quite short period stipulated, no surcharge is levied for what is technically a revolving credit facility. Holders need not, however, pay off more than a relatively low percentage of their debt each month; this may ease temporary cash flow problems, but interest is charged at quite an expensive rate on any outstanding debt. Retailers and service providers, whose profits probably rise with higher turnover without delays for cashing cheques, some of which may never be honoured, receive from the credit card provider prompt payment for all transactions, but a small percentage is deducted. This deduction, together with interest on uncleared debts, makes the enterprise profitable for credit card providers despite the cost of computers and administration. Marketed to more affluent members of the public, ‘Gold’ cards generally charge higher annual fees, but offer cheaper and longer credit for larger sums. Store cards do not seem very different to users; the disadvantage of their being acceptable only in a single store or chain is often offset by discounts on purchases that are justifiable because customer loyalty is maintained. Debit cards (such as Switch) operate virtually as electronic cheques.

   See also: hire purchase; promotions; sales

   Further reading

    Sayer, P.E. (1988) Credit Cards and the Law: An Introduction, London: Fourmat (presents issues generally before discussing legal aspects).

   CHRISTOPHER SMITH