Credit Cards: The Business of Enslaving Poor People

Summary

This video script delves into the history and impact of credit cards, from the inception of the Diners Club in 1949 to the modern-day financial tools they've become. Highlighting the shift from charge cards to credit cards, it discusses how they've been used to exploit human nature and greed, leading to widespread debt. The script also covers strategies for using credit cards responsibly, like paying off balances monthly to avoid interest, and leveraging rewards and perks without falling into debt traps. It concludes by emphasizing the importance of credit management and the potential for consumers to benefit from credit cards when used wisely.

Takeaways

• 🍽️ The Diners Club card, started by Frank X McNamara in 1949, was the first payment card company and operated as a charge card, not a credit card, requiring full payment each month.
• 💳 Charge cards like the Diners Club and American Express expect full payment and are different from credit cards, which allow for minimum payments and accruing interest.
• 📈 In its first year, the Diners Club had 10,000 sign-ups, growing to over 1 million members by 1959, illustrating the rapid adoption of this new payment method.
• 🧩 Credit cards exploit human nature and greed by creating a disconnect between the act of buying and the pain of paying, making consumers feel like they're getting something for free.
• 🏦 Historically, some of the wealthiest dynasties have been bankers, profiting from debt and interest, and credit cards became a modern extension of this business model.
• 📊 The average American adult has three credit cards with an average balance of over $5,500, while credit card companies made over $176 billion in 2020, showing the scale of the industry.
• 🏢 Bank of America launched the first general-purpose credit card, Bank Americard, in 1958, which was a significant step in the evolution of credit cards.
• 🔄 The introduction of magnetic strips on credit cards in the 1980s allowed for more widespread use and contributed to the increase in household debt in the U.S.
• 📈 South Dakota's removal of interest rate caps and the Marquette decision by the U.S. Supreme Court allowed credit card companies to charge higher interest rates across all states.
• 💔 High-interest rates and fees can trap consumers in debt, with some paying over $14,000 for a $10,000 debt over two years at a 36% interest rate.
• 🛡️ Responsible credit card use involves not buying what you can't afford and paying off the balance every month to avoid interest and fees.

Q & A

What was the first real payment card company in the world?

The first real payment card company in the world was Diners Club, started in 1949 by Frank X McNamara.

What is the difference between a credit card and a charge card?

A credit card allows you to pay off a balance over time, often accruing interest, while a charge card, like the original Diners Club card, expects the balance to be paid in full at the end of each month without incurring interest.

How did the Diners Club card go viral in its early years?

In its first year, 10,000 people signed up for the Diners Club card, and by 1959, the club had over 1 million members, indicating its rapid growth and popularity.

What psychological aspect did credit cards tap into according to the script?

Credit cards tapped into the essence of human nature and greed by disconnecting the pleasure of buying from the pain of paying, making consumers feel like they are getting something for free.

Why are some of the biggest dynasties in history associated with banking?

Some of the biggest dynasties in history are associated with banking because making people debt slaves through loans and interest is an efficient way to accumulate wealth without the need for manufacturing or shipping products.

What was the average balance of credit card debts for the average American adult, according to the statistics mentioned in the script?

The average American adult has an average credit card balance of over $5,500.

How did the Bank of America's launch of the Bank Americard in 1958 differ from the original Diners Club card?

The Bank Americard was the first general-purpose credit card, sent to thousands of people across America, unlike the Diners Club which was initially more exclusive and did not have a magnetic strip for recording purchases.

What significant change in the U.S. legal landscape allowed credit card companies to charge higher interest rates?

The Marquette decision by the U.S. Supreme Court allowed banks to export their interest rates to other states, effectively removing interest rate caps in other states and enabling credit card companies to charge higher rates.

What was the impact of the Smiley decision by the Supreme Court on credit card companies?

The Smiley decision removed the last bits of regulation on late fees and interest rates, giving banks free reign to increase these charges and rake in more profits.

How did credit card companies target young and impressionable college students in the 2000s?

Credit card companies targeted young college students by offering them credit cards with attractive rewards, cash back, and zero percent fees for the first six months to a year, getting them used to missing payments and accruing interest.

What strategy did the speaker suggest to avoid paying interest or fees to credit card companies?

The speaker suggested not buying what you can't afford and always paying off the credit card balance every month to avoid paying interest or fees to credit card companies.

Outlines

00:00

📘 The Inception of Credit Cards and Their Psychological Impact

This paragraph delves into the origins of credit cards, highlighting the Diners Club card introduced by Frank X McNamara in 1949 as the first payment card company. It emphasizes the card's nature as a charge card, expecting full payment rather than incurring debt. The paragraph also discusses the psychological aspects of credit card usage, suggesting that they exploit human nature and greed by creating a sense of getting something for free. It touches on the history of credit card companies making profits through debt slavery, and how the average American adult's credit card debt has become a significant issue, with companies earning billions in 2020.

05:02

🏦 The Evolution and Tactics of Credit Card Companies

The second paragraph explores the evolution of credit cards, starting with Bank of America's launch of the Bank Americard in 1958, which marked the beginning of general-purpose credit cards. It discusses the challenges faced by early credit card issuers, such as fraud and the difficulty of tracking purchases. The paragraph then describes how credit card companies sought to increase profits by raising interest rates, which were initially limited by regulations. The crucial role of South Dakota's deregulation and the Marquette decision by the U.S. Supreme Court is highlighted, which allowed banks to export high interest rates across states. The tactics of credit card companies to attract new customers, especially high-risk individuals like college students, and the strategies employed to maximize profits, such as late fees and penalties, are also covered.

10:03

💳 Strategies for Responsible Credit Card Usage and Financial Freedom

The final paragraph focuses on how individuals can use credit cards to their advantage without falling into debt traps. It features insights from Donald Trump and others who have successfully utilized credit cards for perks and rewards without incurring interest. The paragraph outlines the benefits of credit cards, such as airline lounge access and cash back rewards, and how these can be enjoyed without the burden of debt. It emphasizes the importance of responsible credit card use, including not purchasing more than one can afford and paying off the balance in full each month. The paragraph concludes with advice on how to choose the right credit card products for those who wish to avoid accumulating debt and the promotion of financial literacy to build and maintain a good credit score.

Keywords

💡Diners Club

Diners Club is recognized as the first payment card company, founded in 1949 by Frank X McNamara. It introduced a novel way of dining at restaurants on credit, with bills to be paid off at the end of each month. The concept was revolutionary as it was the first of its kind to thrive, setting the stage for modern credit and charge cards. In the video, it is highlighted as the precursor to today's credit cards and its introduction marked a significant shift in consumer payment methods.

💡Charge Card

A charge card is a type of payment card that requires the balance to be paid in full each month, as opposed to credit cards that allow for a minimum payment and accrual of interest on the remaining balance. The Diners Club card is an example of an early charge card. The script mentions that charge cards were the first to survive and thrive in the market, and it contrasts them with credit cards, emphasizing the expectation of full monthly payments.

💡Credit Card

A credit card is a payment card that allows cardholders to borrow money, spend up to a certain limit, and later repay the amount, often with interest. The video discusses the evolution of credit cards from the original Diners Club charge card, highlighting how they have become a widespread financial tool with the potential for consumers to accrue significant debt if not managed responsibly.

💡Fintech

Fintech, short for financial technology, refers to the use of technology to improve and automate the delivery of financial services. In the context of the video, fintechs are mentioned as companies that are currently operating in the space of charge cards, similar to the original business model of American Express with its Platinum and Gold cards.

💡Debt Slavery

Debt slavery is a concept where individuals are metaphorically 'enslaved' by their debts, working to pay off loans and interest, often with little to no financial freedom. The video uses this term to criticize the business model of credit cards, suggesting that they exploit human nature and greed, leading to a cycle of debt that benefits the issuing institutions.

💡BankAmericard

The BankAmericard, launched by Bank of America in 1958, was the first general-purpose credit card. It was a significant development in the credit card industry, allowing cardholders to make purchases at a wide range of establishments. The script mentions the BankAmericard as a milestone in the evolution of credit cards, leading to the widespread adoption of credit card usage.

💡Visa

Visa is a major global credit card brand that originated from a merger involving Bank of America in the 1970s. The video mentions Visa as an outcome of the credit card industry's growth and competition, which led to the standardization and widespread acceptance of credit cards across different banks and merchants.

💡Interest Rate

An interest rate is the percentage of an amount loaned that a lender charges for its use. In the context of credit cards, the interest rate is the cost a cardholder pays for carrying a balance. The video discusses how credit card companies have increased interest rates over time, transforming credit cards into a lucrative source of profit through debt accumulation.

💡Marquette Decision

The Marquette decision by the U.S. Supreme Court allowed banks to export their interest rates to other states, effectively nullifying interest rate caps in other states. This decision is highlighted in the video as a turning point for credit card companies, enabling them to charge higher interest rates across the U.S., regardless of state regulations.

💡Revolvers

Revolvers, in the context of credit cards, refers to customers who carry a balance from month to month, thus revolvong debt and incurring interest charges. The video describes how credit card companies prefer revolvers as they generate more revenue through interest payments compared to customers who pay off their balance in full each month.

💡Credit Card Rewards

Credit card rewards are incentives offered by credit card issuers to encourage card usage, such as cash back, points, or travel benefits. The script discusses how credit card companies use rewards to attract new customers and retain existing ones, even though these rewards can sometimes lead to increased debt if not managed properly.

Highlights

The Diners Club card, started by Frank X McNamara in 1949, was the first payment card company, allowing credit at restaurants with monthly bill payments.

Diners Club introduced the concept of a charge card, distinct from a credit card, with the expectation of full monthly payments.

Sebastian from the YouTube channel Assembi teaches profiting from credit cards to avoid financial enslavement.

In its first year, the Diners Club card attracted 10,000 sign-ups, and by 1959, membership reached over 1 million.

Credit cards exploit human nature and greed by creating a feeling of getting something for free, despite the logical understanding of debt.

Historically, some of the wealthiest dynasties have been bankers, capitalizing on debt and interest.

The average American adult holds three credit cards with an average balance over $5,500, while credit card companies earned over $176 billion in 2020.

Bank of America launched the first general-purpose credit card, Bank Americard, in 1958, expanding credit card accessibility.

The introduction of magnetic strips on credit cards in the 1980s facilitated greater adoption by banks and increased consumer spending.

South Dakota's elimination of interest rate caps and the Marquette decision by the Supreme Court allowed banks to charge higher interest rates across states.

The Smiley decision by the Supreme Court further deregulated late fees and interest rates, enabling banks to impose harsher terms on consumers.

Credit card companies targeted young and impressionable college students, offering them credit with high interest rates and penalties.

Credit card companies prefer 'revolvers' who carry debt and pay more in interest, rather than those who pay off their balance monthly.

Donald Trump endorsed the Visa check card, emphasizing its convenience and consumer protection against fraudulent purchases.

To avoid being exploited by credit card companies, consumers should not buy what they cannot afford and pay off their balance monthly.

Credit cards can be beneficial when used responsibly, allowing users to enjoy perks like airline lounge access and travel points.

Building credit is essential to take advantage of credit card benefits, and services like Extra can assist in establishing a good credit score.

Transcripts

long before credit cards were a thing

there was something called a diners club

card started in 1949 by a guy named

frank x mcnamara

the diners club was the first real

payment card company in the world and it

let you eat at restaurants on credit and

then you could pay off your bill at the

end of each month but it wasn't a true

credit card it was what's called a

charge card

and it was the first of its kind to

survive and thrive

so i would say those are called charge

cards

there's been a few fintechs that are

doing that now american express

traditionally has done that with the

platinum the gold uh but yeah with

credit cards you're paying

you can pay off the minimum and then you

can accrue a lot of debt and pay a crap

ton of interest and that doesn't make

any sense but yeah charge cards the

expectation is that you pay it off in

full this is sebby from the youtube

channel assembi he teaches people how to

profit from using credit cards instead

of getting enslaved by them so sebastian

from ask sebi i talk about credit cards

and how normal people can use it to do

aspirational trips in its first year 10

000 people signed up for the diners club

card by 1959 the club had over 1 million

members it went viral

see when frank mcnamara started the

diners club card he has stumbled upon

something insidiously genius charge

cards and later credit cards tapped into

the very essence of human nature and

greed by paying with a credit card you

disconnected yourself from the pleasure

of buying to the pain of pain it makes

you emotionally feel like you're getting

something for free when logically you

know that isn't the case

see one of the most efficient ways to

make money is to get people in debts to

make them your debt slaves

there is a reason why some of the

biggest dynasties throughout history

come in the form of bankers that's

because all you have to do is hand

someone money at an interest rate and

that's literally it there's no

fulfillment process you don't have to

manufacture and ship them a product all

you have to do is sit back and your debt

slaves will work for you to pay off the

loan

ideally you would either want them to

take out an incredibly large loan like a

mortgage for a house so they're trapped

in that loan for half or all of their

life or you would want them to have an

insanely high interest rate so that even

if they only have a tiny bit of debts

they would still be caught in a vicious

cycle for life which would obviously

trap poor people the easiest and credit

cards became the perfect vehicle for

doing so it allowed you to apply the

same psychology that traps people into

giant loans like for a house but with

everyday purchases i mean look at it

it's just a piece of plastic it's so

innocent and pretty it's just one

purchase that i can't afford right now

i'll pay it off until they don't

and before they know it they've racked

up so much credit card debt that they

can barely afford to pay off just the

interest every month

and that's exactly how things played out

today the average american adult has

three credit cards with the average

balance of over 5 500

while the credit card companies have

hauled in over 176 billion dollars in

income in 2020 alone

this is how credit cards became the

modern day loan sharks

what do you think i am some financial

institution oh you're right we just need

to go to the bank

this video is about the dark side of

credit cards however i'm actually a huge

fan of them i own five credit cards

myself and i have never paid a single

cent in interest to credit card

companies so if you play your cards

right you never buy what you can't

afford you always pay off your credit

card every month you can reap all the

perks they give you for free without

becoming a sucker

[Music]

[Music]

with only one credit card the bank

america

you can charge almost anything almost

anywhere the bank americart gives you

instant credit from boston to honolulu

from london to bangkok the bank

americart will soon be coming to

southern ohio as another service of the

citizens national bank of ireland

working off of the success of the diners

club bank of america launched the first

general purpose credit card in 1958

called the bank americart bank americart

think of it as money

they sent it to thousands of people all

over america and because it didn't have

a magnetic strip or any way to keep a

record of purchases bank of america lost

millions

back in the day credit card fraud was

ridiculously easy but even though they

lost money they gained a massive

customer base bank america today's way

to pay by 1966 the idea behind the

credit card was so popular bank of

america started licensing it to other

banks then a merger in the 70s created

visa and the credit competition was

officially on by the 80s most credit

cards came with a magnetic strip this

opened up the floodgates for more and

more banks to jump on the bandwagon and

offer their customers their own credit

cards people loved it they were spending

money that wasn't theirs along with

other factors household debt in the u.s

started skyrocketing

the business model worked perfectly but

there was still something missing

profit

at the time these credit cards were only

charging four to five percent interest

compared to today's average of over 16

sure banks were making modest money off

of the interest they charged but in most

cases they were legally barred from

raising rates higher they needed a way

to charge people more for using credits

they needed to turn this new genius tool

that made people think that they could

buy stuff for free into a loan sharking

tool

and by the late 80s and early 90s they

finally found it

[Music]

at the time most states in the u.s had a

lot of regulations that prevented credit

card companies from raising interest

rates but then one state budgets south

dakota eliminates its cap on credit

interest rates the state had been

cash-strapped for decades and charging

more interest was their hail mary their

last ditch effort to avoid drowning in

bankruptcy and it got even better for

credit card companies just a few years

later the u.s supreme court passes the

marquette decision allowing banks to

export their interest rates to other

states this was incredibly important

because it meant that if a bank was

based in south dakota and had an

interest rate of 25

they could charge that same percentage

all over the us regardless of the

interest rate loss in the other states

effectively the interest rate cap in

other states became meaningless suddenly

all the banks wanted to move to south

dakota and because they could charge a

lot more interest they started offering

credit cards to everyone college

students young adults the unemployed

everyone gets a credit card

[Applause]

but if you were one of these more risky

individuals you would just have to pay

an insanely high interest rates that

could keep you trapped for life it got

to the point where citibank was one of

the most profitable businesses in the

early 2000s then the supreme court

passes another decision called smiley it

removed the last bits of regulation on

late fees and interest and basically

gave banks free reign to rake in the

money the results things like 36

interest rates or changing clients

interest rates at a moment's notice a 36

interest rate meant that if you took two

years to pay back a ten thousand dollar

credit balance you would actually be

paying the bank over fourteen thousand

dollars and around five hundred ninety

dollars every month

most people can't afford 600 a month and

end up being trapped for much longer

even people who never missed a payment

suddenly found that their interest rates

had almost tripled but there was pretty

much nothing they could do about it and

the credit card companies were just

getting started

[Music]

evidently some people have money to burn

why else would they pay an outrageous

fee to carry a simple credit card

when they could carry the discover card

the card that charges no annual seed yet

pays cash back on every charge which

means it puts money into your pocket

instead of burning a hole

[Music]

by the 2000s credit card usage had

doubled even in low income households

after taking control of interest rates

their next target was getting new

customers and obviously the client based

the target were young impressionable

college students most of them wanted

extra cash and wouldn't be bothered to

read the fine prints a perfect

combination most of them were also

likely to miss payments which meant

credit card companies could slap them

with late fees and penalties

a credit card company's worst nightmare

is a customer that pays off their debt

every month because they get all the

benefits without paying the interest

what they really want are the revolvers

people who can't afford to pay back

their debt so the amount of money they

owe just gets bigger and bigger american

credit card companies were starting to

look like high-class loan sharks they

would hire teams of lawyers to write

their contracts then bury hundreds of

loopholes in the fine prints these

loopholes gave them the power to raise

interest rates even if you missed the

payment on another creditor's loan

choose public holidays or weekends for

payment due dates so there was a greater

chance your money would arrive late they

would even advertise going paperless to

save the environments when the reality

is they know most people aren't likely

to read the fine print in an email

looking for even more customers credit

card companies started offering

attractive rewards and cash back rewards

for using their cards they will offer

zero percent fees for the first six

months to a year to get you used to

missing payments and not feeling the

pain of getting charged interests until

it becomes a habit and they even lower

their minimum payment from five percent

to two percent

small

one card

visa makes sense

today the average american family has

over eight thousand dollars in credit

card debts and most of it is just

collecting more and more penalties for

late payments and even when families

declare bankruptcy they still get offers

from dozens of credit card companies for

even more money they can spend now all

this may sound bad but there's a way to

fight back a way to beat the credit card

companies at their own game

hi i'm donald trump to talk to you about

the remarkable convenience of the visa

check car

everyone knows the visacheck card's

directly connected to the money in your

checking account

oops but if your card's lost or stolen

did you know you're not liable for

fraudulent purchases

and you'll get every single cent of that

money

back

see i actually love credit cards i

myself have five cards right now and

every single purchase i make goes on my

credit card and i've never paid a single

cent in interest to credit card

companies ever have you ever paid a

single cent interest

no doesn't really make sense to because

like the interest rates are crazy so why

yeah why would i ever put myself in a

situation to do that

how long have you had credit cards

um probably like eight years or so i i

yeah it's been a pretty long time while

at the same time i still get to enjoy

all the perks they offer for free so

what kind of benefits do you enjoy these

days i think the most useful ones that i

appreciate every day now is airline

lounge access so the platinum card you

get access to delta side clubs and also

centurion lounges i think you went to

the centurion lounge in london yeah for

me i think it elevates that airport

experience a lot more

so a lot of people associate airports

with just terrible experiences sitting

around crowded

uh waiting hours on end and when you

have lounge cards you kind of i don't

know you kind of appreciate it a lot

more you're like oh i can just drink

free alcohol and have free food and have

free coffee and hang out on my laptop

for an hour or two it's not that bad

like i don't really mind doing that and

it's a lot more comfortable and a lot of

those cards the annual fee sounds very

aggressive because you see this 700

number but a lot of people don't realize

that there's a lot of credits and you

might not use every single credit but it

makes it a lot more reasonable so that

700 might really only be 200

and then if you let's say fly every

quarter that's like about 50 per like

trip that's not too bad and then if you

fly more obviously it becomes even

better and then uh with points with like

intro bonuses uh you can do just really

cool trips so right now i'm in vail

saving a crap ton of money because each

night here is supposed to be two

thousand dollars and if you like go

around and you hear other people talking

and the watches people are wearing you

know that people are dropping a lot of

money here and i'm like oh i'm here

using points and it's like 25 000 points

that's effectively 250

but yeah so i'm spending 250 worth of

points for something that costs 2 000 a

night that's a no-brainer to me are you

always getting new credit cards to get

more points or how does that work so

there's a lot of different roles

involved where you can only get certain

bonuses either once every two years or

once in a lifetime so a lot of the once

in a lifetime cards american express

ones i've pretty much gotten every

single card so like there's no more

bonuses for me over there but with

something like chase i can now circle

back and get other chase bonuses

literally the only thing you have to do

to make sure you don't get screwed over

by credit card companies is to one don't

buy what you can't afford if you

wouldn't use your own cash on it don't

use a credit card and two pay it off

every month if you just do those two

things you will never pay a single

diamond interest or fees to credit card

companies

the average american i think has like 5k

and credit card debt or whatever so

how do you view credit cards i think

it's like a knife or like alcohol so if

you're someone who's irresponsible

i mean anyone can be very dangerous with

a knife right but if you're if you're

someone who's trying to be a chef or

even alcohol is a good example right if

you can drink responsibly alcohol is not

really a problem but yes there are

people out there who

where alcohol ends up hurting them and

for them i would agree that it makes

sense to avoid it entirely but also

there's a there's a lot of other credit

cards that are not

i guess they don't work the same way as

the traditional credit cards in the

sense that you have to pay it off in

full every month so there's a lot more

products out there that do stuff like

that that might be better for those

people so they can't really accrue debt

they have to pay it off every single

month anyways if you want to learn more

about how sebby hacks credit cards i'll

link to his youtube channel and

instagram below but the only way you'll

be able to take advantage of credit

cards is if you already have good

credits and if you still need to build

your credit to get your first credit

card in the first place you can check

out our sponsor extra with the link

below which is again something i wish i

had when i was trying to build my credit

score

[Music]

[Music]

you