In 1949, Frank X McNamara, shared a meal with two friends. When he reached into his pocket for his wallet so that he could pay for the meal (in cash), he discovered that he had forgotten his wallet at home. He called his wife to bring him some money – and suddenly a new idea was born. A credit card that could be used at multiple locations and not require someone to have cash on them. Previously, retailers had their own credit cards and made money out of the loyalty of the cardholders, since the cards could only be used at their locations.
McNamara's credit card, the Diners Club, would need a different method to make money since they wouldn't be selling anything. Restaurants and retailers who accepted the Diners Club credit card as payment were charged a 7% fee for each transaction, and the cardholders were charged $3 annually (starting in 1951).
The first Diners Club credit cards were given out in 1950 to 200 people- who were mostly friends of McNamara. The card was accepted in 14 restaurants in New York, and were made of paper. It was hard to get retailers to agree to accept the card because they saw it as competition for their own credit cards, and customers didn't want to bother with the card unless there were a large number of retailers who would accept it as payment.
The credit concept grew and by the end of 1950, more than 20,000 people were using the Diners Club credit card.
Competition for credit cards began in 1958, when Bank Americard (later called Visa) and American Express both started offering their own credit cards.
In 1975: Citibank adopts "plain language" contracts, and decreased the loan agreements from 3,000 words down to 600.
In 1983: The governor of South Dakota, Bill Janklow, signed a state law that allowed credit card contracts the ability to change at any time and for any reason. This explains why the majority of credit card companies operate out of South Dakota.
In 1988: The Federal Truth in Lending Act was amended to include more specific contracts. Credit card companies responded by offering pages and pages of complicated fine print.
During the MID-1990s: Financing and credit cards are offered to riskier borrowers with low introductory rates and steep fees and penalties. Capital One and several non-bank institution finance firms lead the way with these offers.
In 2000: The larger banks use their “change-in-terms” clauses provided in 1983 to increase interest rates on good borrowers in order to recover from losses of customers not paying their credit card bills.
In 2005: Questionable mortgages with “teaser” rates are given to people who are not likely to afford the homes, and more credit cards are given out.
In 2008: The Fed adopts new restrictions for credit cards that go into effect in July 2010, with separate legislation designed to protect cardholders from many issues under the “Credit Card Bill of Rights”.