Money & the Law: Credit card companies can change terms with 45 days notice | Business

Credit cards are one of the most important financial-services inventions of the last century. That’s because they allow you to buy things today and pay for them later. And, if you pay your bill in full every month, there is no interest cost.

However, notwithstanding their utility, credit cards do have one annoying attribute. Under the federal Truth In Lending Act, card issuers can change the terms of your account by merely sending you a notice 45 days in advance of the change. This includes the annual percentage rate you pay, all other fees and charges applicable to the account, and any “rewards” program the card issuer might have been providing.

If you don’t like the change, your only option is to cancel your account. If you do cancel the account, you’ll be able to pay off your current balance over time. But you’ll no longer be able to make new purchases.

By way of brief history, the credit card industry goes back a long way and has its roots in the hotel industry. Starting in the early 1900s, upscale hotels began issuing identification cards to their guests that could be used to make purchases at the hotel and at nearby merchants. (Does anyone remember the Broadmoor Card?)

Then, in 1949, the Diners Club card came along as the first general-purpose charge card. (A charge card, in contrast to a credit card, requires balances to be paid in full each billing cycle.) Merchants found people carrying Diners Club cards became free spenders and, despite the 7% fee Diners Club charged merchants on each transaction, merchants welcomed customers carrying the card.

A decade later, Bank of America came up with the first true credit card, called the BankAmericard. Bank of America licensed other banks to issue the card, but it kept control of the network that processed transactions.

Soon, however, the larger banks issuing the card wanted a slice of the processing network revenue and the Visa system was born. Visa doesn’t issue cards. It controls the brand and the transactions processing system, and licenses banks and others to issue cards using its brand. In 2008, Visa became a publicly traded company, listed on the New York Stock Exchange.

MasterCard came along in 1966 as a competitor to Visa. It became a public company in 2006, also listed on the New York Stock Exchange. Like Visa, MasterCard doesn’t issue cards. It licenses others to issue cards, and it controls the transactions processing system.

American Express started its charge card business about the same time Bank of America came up with the BankAmericard – in the late 1950s. In 1985, Sears got in the act with the Discover Card. After bouncing around among various owners, the Discover Card is now owned by Discover Bank, also a New York Stock Exchange company. Discover Bank, unlike Visa and MasterCard, itself issues cards.

To round out the picture, many large merchants, in an effort to avoid paying fees to the credit card industry, have tried to develop their own card programs, with limited success.

But, back to change in terms notices. It’s important to carefully read all change in terms notices and then ask yourself if it’s time to look for another card.

Jim Flynn is with the Colorado Springs firm of Flynn & Wright LLC. You can contact him at


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