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How the Credit Card Was Born

 The history of credit cards have some interesting anecdotes, ranging from the conception of the product when business executive Frank McNamara got stuck in restaurant without his wallet and had to call his wife down to NYC with his checkbook, to how the wife on an IBM engineer was the person who figured out the logistics of adding a magnetic stripe to a payment card with her household iron. Here’s a quick story in the Christian Science Monitor with some interesting factoids.• With its cardboard credit cards, Diners Club aimed for mass acceptance. It charged merchants a 7% fee on each transaction, but assured them that cardholders would spend more than noncardholders.

• By its first anniversary, Diners Club had attracted 42,000 members and a few competitors. By 1953, it became the first internationally accepted charge card, according to the company.

• But it wasn’t until 1958 that major companies joined the competition. These included American Express, which issued some of the first plastic cards; Bank of America; and Carte Blanche, owned by Hilton Hotels.

But it really was Bank of America that shifted the business from wealthy New Yorkers to a global mass market with its preapproved mailing known as the “Fresno Drop” or “Fresno Experiment”
• Bank of America introduced the card with an unforgettable — and incredibly expensive — publicity stunt: It mailed 60,000 already-activated BankAmericard credit cards to its customers in Fresno, California.

• Known in the industry as the “Fresno drop,” this mass mailing resulted in widespread fraud and delinquencies that cost the bank millions. Despite the losses, the issuer offered the same card to the rest of its California customers the following year. In 1961, the card generated its first operating profit

Legislation began to improve clarity a few years later• Other problems became apparent. Many cardholders were dogged by fraudulent charges on their accounts, for example. Women generally couldn’t qualify for a credit card without a male co-signer. Credit card disclosures remained minimal.

• Lawmakers stepped in, but not quickly. In 1968, the Truth in Lending Act — part of the Consumer Credit Protection Act — standardized methods of calculating annual percentage rates, or APRs. But Congress passed the law only after studying the issue for eight years, according to a 1971 article in The Journal of Consumer Affairs.

So, did Frank McNamara realize where this all would end up? We think not: “Before selling his equity in Diners Club in 1952, he predicted the company would “’peter out at 250,000 members, last for a while, then disappear like the zoot suit’”Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

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