Plastic Money 2...?!?

Today we will try to understand the various means of using credit in the history of modern civilization. That is the different formats of predecessors of Credit Card that paved the path for today's Plastic Money...!

How did people use credit?

Until the end of the 19th century, only wealthy people had easy access to credit. Most people had to pay for things in cash. If they did need to borrow money, people had to turn to moneylenders and pawnbrokers. But this was often an unreliable form of credit, with high interest rates and often difficult arrangements for repayment.

Other forms of credit were available to ordinary people but there was nothing like the network of banks and credit facilities, which we have today. In local shops, it was possible for people to buy things on the slate or tab and pay for them on a monthly basis.

From the 18th century until the early part of the 20th, local tallymen or packmen travelled round selling clothes in return for small weekly payments. These people were traders who allowed their customers to pay by instalments. They were called 'tallymen' because they kept a record or tally of what people had bought on a wooden stick. One side of the stick was marked with notches to represent the amount of debt and the other side was a record of payments. They were called 'packmen' because they carried their goods (including Bibles and tea) on their backs.

During the 19th and early 20th centuries, as people became richer and had more money to spend on consumer durables and other items for the home, credit arrangements with shops became more commonplace. Finance companies were formed in the late 19th century to meet this growing demand.

Hire purchase

One of the most popular types of credit agreement to emerge at this time was hire purchase. Under a hire purchase arrangement, the finance company buys the goods on your behalf and, in effect, 'hires' them out to you. People used hire purchase to acquire household goods that would ordinarily be out of their reach. They made regular payments to the finance company in exchange for use of the goods. Hire purchase is a 'secure' form of credit because the finance company is able to take back the goods if you fail to make your regular payments.

You might encounter a modern example of hire purchase when buying a car. The finance deals you see offered by car showrooms involve you making monthly payments, although they give you the option to purchase the vehicle outright. Again, if you don't pay the instalments, the finance company can take the car back.

Laws were introduced to regulate consumer credit in the first half of this century. The aim of these laws was to protect people signing hire purchase agreements but also to make them fully aware of what they were taking on. The Moneylenders Act of 1927 restricted how credit arrangements could be advertised and provided for the licensing of moneylenders.

A law to control hire purchase was introduced in Scotland in 1932. This was extended to England in 1938. The Hire Purchase Act of 1938 made the owner of the goods (in other words, the finance company) responsible for their quality. It also ensured that when a hire purchase agreement was terminated, the person hiring the goods was only liable to pay up to half the total price, including the amount outstanding. If the hirer had paid one third of the total price, the finance company could not take back the goods without first getting permission from a court of law.

In 1964, a new Hire Purchase Act introduced the "pause for reflection". This meant that people could cancel a hire purchase agreement after a few days if they had second thoughts. This only applied if they had signed the agreement away from the shop or retail outlet. The Act also required the finance company to send a "notice of default" to the hirer before the goods could be repossessed. This gave the hirer seven days to bring the payments up to date.

By the end of the 1960s another, more flexible, form of credit was available. Credit cards had emerged in America in the 1950s, developed by organisations like Diners Club and American Express. For the first time, credit cards offered people a form of 'unsecured' credit that was widely available and easy to use. The Consumer Credit Act of 1974 superseded all previous credit legislation and still governs the granting of consumer credit today.

When did people start to use credit cards?

The forerunner of today's payment card was the 'shopper's plate', which was introduced in the USA in the 1920s. In effect, it was an early version of the modern store card. It could only be used in the shops, which issued it, and it offered shoppers a basic form of credit - 'buy now, pay later'. In this case, shoppers had to repay the money they owed in full every month.

In the 1950s, Diners Club and American Express launched their charge cards in the USA. These are the earliest examples of plastic money. Credit cards in the US soon followed.

Barclays Bank launched the first British credit card in 1966. It based Barclaycard on Bank Americard (now known as Visa).

It is only since the 1960s that credit has become widely available to most people and credit cards are one of the main reasons for this.

Phew...! Quite a long history... isn't it...?!?

Tomorrow we will take a closer look at all the aspects of the 21st Century Credit Cards.

Stay tuned and don't swipe yours yet...!?!