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A Card to Borrow Your Future

Can Access to Credit Encourage Savings?

By David A. Vise
Washington Post Staff Writer
Sunday, October 24, 2004; Page F01

For a quarter-century, a Boston inventor has been obsessed with a single idea: an innovation that would give millions of American workers the chance to borrow their own money from their 401(k) savings plans using a new kind of credit card.

In 1980 the inventor, an animated fellow named Francis Vitagliano, shared his concept with an MIT professor, Franco Modigliani. The Italian-born economist had been writing for 20 years about his theory of how and when people spend and save money during their lifetime, the so-called Life-Cycle Hypothesis. Modigliani's work would win him the 1985 Nobel Prize in Economics, but the call from Vitagliano would, he thought, give him a way to test his theory in real life.


Franco Modigliani, left, and Francis Vitagliano, in Modigliani's MIT office about 10 years ago, patented the card idea. (Halyna Vitagliano -- Courtesy Of Francis Vitagliano)

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The men became champions for this new financial instrument, spending untold sums for a patent on the card idea, trying to sell it to banks and credit card companies, and withstanding a barrage of criticism from members of Congress and the financial community.

Franco Modigliani died last year at age 85. But tomorrow in Washington, Francis Vitagliano, now 55, is scheduled to watch as the 401(k) card is unveiled at a financial conference. Appearing on a panel will be an official of ING, the global financial services company that has licensed Patent No. 5206803 and is preparing to introduce the new card to employers and their k-plan participants soon, after receiving final regulatory approval from the state of Connecticut.

In this time of worry about the American retirement system, the card will once again cause a flap -- but possibly not as much as it has in the past. Whatever the immediate outcome, this is not the last stop for the controversial card as it does or does not become a staple of American getting and spending. And the tale of how it came to exist is one worth telling.

A $10 Million Idea

Working in the pension-compliance field, Vitagliano had his breakthrough idea about the retirement card decades ago when 401(k) savings accounts were in their infancy. But even then he could see that workers would apply to borrow some of the tax-deferred savings from their k-plans, putting employers through a cumbersome process to approve loans for purchase of a principal residence or education or large medical expenses. It would be a laborious process at best, one that employers and plan administrators would grow to dislike as much as the employees did. A 401(k) card would make the process much easier.

He and Modigliani also shared the belief that a 401(k) card would give workers the chance to replace costly credit card debt, often bearing interest rates above 20 percent, with lower-cost funds from their own savings. They also held fast to the view that easier access to 401(k) savings would encourage more employees, especially younger ones, to put greater sums of money away for retirement, knowing that they weren't locking it away for decades.

Each of those ideas had powerful critics.

In the mid-1990s, Vitagliano and Modigliani appeared on the verge of success after licensing their patent to Banc One, a major Ohio bank that was ready to roll out the credit card. But bringing a new product to market is fraught with peril, as they found out when they ran into opposition in Washington.

The retirement card would cause people to drain their 401(k) accounts, said then-Rep. Charles E. Schumer (D-N.Y.), who introduced a bill to block it.


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