Is 'plastic economy' ending?
Plastic dollars, it appears will be curtailed. Plastic dollars are the credit, cards that sometimes prompt impulsive buyers to make purchases they wouldn't if they had to use cash; they now face reduction in the administration's big anti-inflation drive.
So-called "revolving debt" consisting of credit cards of retailers, gasoline companies, and commercial banks, and check credit of commercial banks -- reached the substantial figure of $52 billion at year end. Only part of this is "plastic money," however -- so-called from the identification cards issued by bank credit card programs of which Mastercharge and Visa are the biggest.
When Mrs. Smith pays plastic money for the fur coat that just fits her mood, she may forget that the bank will charge her 18 percent interest for the loan she is making automatically.
Consumer credit loans in the United States were $14.7 billion in 1971, and $ 50.6 billion by the start of 1979. Total consumer credit outstanding last November was more than $375 billion.
Now the banks say the creit card business is getting less profitable. Sky-high interest rates already charged to the banks by the Federal Reserve System are cutting into the business.
President Carter has authority to ask the Federal Reserve board (Fed) to control credit by utilizing his power under the Credit Control Act of 1969. He has been meeting regularly with Paul A. Volcker, chairman of the Fed.
Senate Democratic whip Alan Cranston says controls on "plastic money" may be imposed soon, and White House informants say this is one of the items under consideration.
Credit cards are a handy device for charge consumers when the interest rates paid are in normal ranges. Cash customers carry heavy wallets; charge customers just show their cards. But now the prime rate (the base interest rate banks charge their top customers) stands at an extraordinary 17 1/4 percent, which is close to the maximum rate of 18 percent that most banks can charge consumers who have credit cards.
The banks' margin for credit card loans is increasingly thin. Bank of America raised charges last week from 18 percent on the first $1,500 and 12 percent thereafter, to a flat 18 percent on all balances.
It looks as though Mrs. Smith may have to start carrying cash again.