Embarrassment Is Wonderful

Aside from the U.S. Treasury, the only group that stands to profit from the Internal Revenue Service's new ruling on expense account spending is the nation's credit card companies. Already a $425 million-a-year business, the card companies--led by Diners' Club. American Express, and Carte Blanche--hope to grow still bigger by trading on an unusual commodity: embarrassment. Since IRS Commissioner Mortimer Caplin has ruled that expense account items for entertainment costing $25 or more must be substantiated, they are counting on businessmen to avoid the unpleasantness of asking for a receipt in front of guests by flashing a credit card; the receipt for the billing serves the customer as evidence of the expenditure. Even in the unlikely event that businessmen are less subject to embarrassment than they expect, the card companies, after difficult beginnings, have finally begun to make for themselves what they set out to abolish--cash.

Bill Dodgers. The card that has had the hardest struggle is the Hilton Credit Corp.'s Carte Blanche, known in the trade as "Carte Rouge" for its steady deficits. Beginning operations in 1959 after its two competitors had already started. Carte Blanche imprudently handed out cards to poor credit risks, ended up with an inordinate number of bill dodgers. In a rescue operation two years ago, Conrad Hilton eased his son Barren out of the presidency, replaced him with veteran Hotelman Benno M. Bechhold, 60. Bechhold weeded out poor risks, cut the number of cardholders by 100,000 (current membership: 425,000) and installed an IBM 1401 computer to speed up billing operations. As a result, Carte Blanche earned $900,000 on billings of $58.7 million for the first nine months of its present fiscal year.

American Express (890,000 cardholders) and Diners' Club (1,250,000) have also profited by tightening up their operations. Though its earnings are buried within Amexco's overall figures, Amexco's credit card last year turned its first profit since starting five years ago, had billings of $189 million. For its current business year, Diners' Club will probably show earnings of about $2,000,000 on billings of $200 million. Both companies have cut thousands of poor risks from their rolls, and Amexco has installed a sophisticated data processing system that sends out not only bills but prompt reminders to overdue accounts to pay up or else.

Unwitting Help. Since the IRS ruling was announced in November, applications have risen 40% for Diners' Club cards, 17% for Amexco cards. Applications for Carte Blanche have jumped 50% so far this month. And though many credit card industry executives had feared that businessmen would spend less with the Government looking over their shoulders, the average individual tab charged on Amexco cards in January climbed $1 to $23. Apparently, Mortimer Caplin has unwittingly helped the credit card industry to convince only too willing Americans that living on the card as well as on the cuff is the proper way to do business.

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