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Plastic passes checks, cash as the way to pay

By Jathon Sapsford
The Wall Street Journal
July 25 2004

Whenever state trooper Michael Poupart pulls over a speeding motorist on I-94 in Wisconsin's Kenosha County, he offers to take Visa or MasterCard debit and credit cards right there on the side of the road.

Drivers initially look puzzled, until the trooper explains he has a card swiper onboard.

Trooper Poupart is one reason the nation passed a watershed last year. For the first time, Americans used cards -- credit, debit and others -- to buy retail goods and services more often than they used cash or check in 2003.

Vending machines, subway systems and charities now accept cards. The government is handing out cards in lieu of food stamps and child-support disbursements. Hip-hop mogul Russell Simmons is marketing a service that lets people put their paychecks directly onto a Visa card, giving consumers without bank accounts access to plastic.

By letting consumers buy things with unprecedented convenience and speed, cards have transformed the economy. They have helped keep consumer spending strong even through terror attacks and recessions. When people pay with plastic, they tend to spend more -- often more than they have in the bank. Thus, credit cards also have fueled an explosion in consumer debt. It is expected to hit $838 billion this year, an increase of 6.8 percent from 2003.

The aircraft carrier USS Harry S. Truman went completely cashless earlier this year. The Navy issued MasterCards to all 5,000 sailors aboard. On payday, seamen insert cards into a machine that electronically loads money stored onto each card. They then use the cards for all onboard purchases.

The Navy estimates sailors on the Truman buy 250,000 soft drinks monthly. When it was a cash ship, somebody had to collect half a ton of quarters each month from all the Truman's vending machines. Those coins then had to be redistributed. Now it's all settled electronically.

Last year, cash was used in 32 percent of retail transactions, down from 39 percent in 1999. Credit-card usage has remained stable, accounting for about 21 percent of purchases during that time. Meanwhile debit cards, which take money out of checking accounts immediately after each purchase, shot up to 31 percent of purchases last year, from 21 percent in 1999.

Consumer activists have long warned of the dangers of credit cards. As cards spread, critics say consumers are running tabs for increasingly routine purchases. "You could end up paying interest on ice cream," says Travis Plunkett of the Consumer Federation of America.

Maria Nemeth, a psychologist in Sacramento, Calif., says consumers are losing the ability to budget. Using plastic, she says, is as hard to resist as junk food. She regularly tells clients to go on 48-hour "cash diets," refraining from the use of plastic for two days at a time.


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