Credit cards got their start in the United States just before the beginning of World War I. Department stores began the practice of issuing dog-tag style metal plates to their favorite customers. By 1924 gas credit cards appeared on the scene, the first cards that could be used at merchants all over the country. This was an important advance, because as automobiles became more common so did traveling, and a gas card that was not accepted away from home had limited value. Indeed, the increasing mobility of the average person is one very important reason that credit cards have exploded with popularity. For example, a merchant in California night not accept a personal check from a customer but would take an American Express or MasterCard without hesitation.
With the onset of the great depression, as well as World War II, travel and buying were heavily curtailed. Tires and gasoline were rationed, and government controls on credit were put into place. Then came 1950 and the inception of the Diners Club. The operator of a small loan company in New York City, Francis McNamara, came across a man who had a large number of department-store credit cards. This person would lend his cards out to his friends and charge for their use. He would borrow money from McNamara’s operation and use it to pay off the card bills amassed by his associates. He made a profit from the spread between the rate that he paid McNamara and the interest rate which he charged his friends.
Predictably, one of the man’s friends eventually failed to pay what had been charged, and the enterprise which he had built collapsed, leaving McNamara with numerous uncollectible debts. As the story goes, McNamara and his attorney were sitting around a table at lunch discussing how he would recover his losses, when he came up with the idea of a credit card that could be used at many different merchants’ locations. Since the idea came to him in a restaurant, he decided to start with restaurants. This, of course, led to the establishment of the Diners Club.
McNamara issued a credit card (which was made from cardboard) with the holder’s name and account number on the front and a list of the twenty-eight restaurants and Manhattan nightspots which accepted it on the back. The annual fee for the card was five dollars. His attorney, who helped him with the business, hired a publicity agent to draw together more restaurants and cardholders for the network. From this, Diners Club grew into the first national credit card not limited to just gas and oil.
In 1951 Franklin National Bank of New York created a credit card which could be used at many different types of merchants (at this time Diners was limited to restaurants, hotels, and air travel expenses). Other banks began their own programs, and then the very large Bank of America in San Francisco started its own card, the BankAmericard, which has evolved into the modern-day Visa card. Other California banks implemented their own programs, which later became the MasterCard of today.
In 1958 American Express noticed the profits of Diners Club and started its own credit card program. Next, BankAmericard really began to grow and succeed. Other banks saw that there was big money in credit cards and wanted to have their own. But they also recognized that in order to have a credit card operation they had to have an abundance of customers. So toward the end of the 1960s banks began mailing out cards to anyone with a name and an address, dead or alive, good credit or bad.
Card use rose and, unsurprisingly, credit card fraud was rampant. Mail theft also became widespread as unscrupulous individuals discovered that envelopes containing credit cards were just like envelopes full of cash. And there was little to stop card companies from sending out cards which customers had never asked for, were not expecting, and could not have known had been stolen until the issuing company began demanding payment for the charges which had been run up. These crimes and other problems stemming from the relentless card-pushing by banks led directly to the passage of the Fair Credit Billing Act of 1974 as well as many other laws designed to protect the consumer.