With the average American household carrying over $15,000 in credit card debt, it’s safe to say that credit cards are a staple for many consumers. Most of us have seen credit cards swiped our entire lives, but have you ever wondered how credit cards came into existence?
The history of credit cards in the United States can be traced back to the 1920’s. The very first credit card in use was a gas credit card designed to help sell fuel to new automobile owners. In 1928, a very similar version to modern credit cards was introduced. These Charga-Plates were issued to customers by various merchants, much like store credit cards used today. Instead of a card with a magnetic strip, the customer’s card had only their name and address and store owners would make imprints of the cards.
For a number of years, most credit cards could only be used in one store. Then in 1934, American Airlines introduced their Air Travel Card that also assigned customers a number and offered discounts to those who paid for tickets on credit. Unlike many of the day’s cards, customers who held Air Travel Cards could use them to purchase tickets on all major airlines. Then in 1950, Diner’s Club began issuing their first credit card for use in finer restaurants throughout New York City.
It didn’t take long for the idea of paying for things with a card instead of cash and the concept of putting things on credit to pick up. In less than a decade, nearly half of the airline industry’s profits came from their Air Travel Cards. And within one year, more than 20,000 Americans held a Diner’s Club card.
Although credit cards had been in use for some time, the first major credit card that relied on a system of revolving credit (meaning the balance doesn’t need to be paid off each month) and was accepted by multiple merchants instead of just one didn’t come into the picture until 1958. Bank of America’s Bank Americard was successfully introduced. Although it was only accepted in California in the beginning, within 2 years, Bank of America began to allow other banks across the country to issue their cards.
The phenomenal success of Bank Americard caught the attention of other bankers, and it wasn’t long before competition came into play. In 1966 the Interbank Card Association (ICA) was formed in New York by executives from 14 banks. They developed the MasterCharge credit card and formed a large global network of banks and merchants that would issue and accept the MasterCharge.
Today, the MasterCharge is known as the Master Card, and in 1975, BankAmericard (along with other competing cards) became the Visa card.
With the growing use of credit cards, Congress stepped in during the 1970’s and began to regulate the credit card industry. At the time, it was common practice for credit card companies and banks to send activated credit cards through mass mailings. This was quickly banned.
In 1996, however, deregulation of credit cards began and the government lifted restrictions on interest rates and penalty charges. This resulted in what many felt were exorbitantly high interest rates and late fees and unfair credit card practices until 2009, when President Obama signed the Credit CARD Act of 2009. This statute was far more consumer-friendly and protects cardholders from things like interest rate hikes, excessive fees, and misleading terms.
Throughout the years, the credit card industry has become one of the highest grossing industries in the world. In the US alone, the total revolving debt is a staggering $801 billion—almost all of it coming from credit cards.