True Origins of the Credit Card, As Told by Nathanael West

There are many urban myths surrounding the origins of the modern-day credit card, but, like many others, I had always believed the much-vaunted assertion that the origin of the credit card lay in the 1950s, with the advent of Diner’s Club.  The internet abounds with articles describing how Frank McNamara was embarrassed to find, when trying to pay his restaurant bill, that he had left his wallet at home.  Luckily his wife was able to pay the bill for him, but he determined never to be embarrassed in a restaurant again, and was inspired to originate the concept of the Diner’s Club Card, the first widely-accepted payment card.

Then, late last night, as Better Half and I were companionably sitting up in bed reading before settling down for the night, as is our wont (I’m currently reading Bruce Chatwin’s Songlines, BH is on Day of the Locust, by Nathanael West), he interrupted my concentration by blurting out ‘Hey, this book talks about a hotel visitor using a credit card’.  On the surface, not the most amazing turn of events, but think about it: Day of the Locust was first published in 1939, way before Frank McNamara came up with the idea for Diner’s Club.

Day of the Locust is set in Hollywood during the Great Depression.  It follows the fortunes of young artist Tod Hackett, working as a costume designer and set painter for the movie studios, who falls in love with aspiring starlet Faye Greener.  In search of the American Dream, the protagonists become embittered and disappointed, and the novel ends with a riot at a movie premiere. Weirdly, one of the characters is called Homer Simpson; Donald Sutherland played him in the 1975 film adaptation of the novel.

So what is the truth of the matter?  Were credit cards really around in the 1930s, or even earlier?  Was Nathanael West talking about a credit card as we understand it today, or did it have a different meaning?  Are there any other early literary references to credit cards?

One day I hope to have read every interesting novel that has ever been written, but that is going to take some time.  Until then, I will have to rely on a combination serendipitous happenstance, as with stumbling upon the reference in Day of the Locust, and good old Wikipedia.  And OK, I must admit that Better Half is a veritable gold-mine of interesting (but useless) information.  As far as I am aware, there are absolutely NO references to the use of credit cards in Dickens, Tolstoy, Hardy, Proust or  DH Lawrence.  Middlemarch’s Dorothea Brooke was a woman of considerable financial clout and influence, but I believe she favoured the good old cheque-book for her major purchases.

Wikipedia cites Looking Backward, a utopian novel by Edward Bellamy, which appeared in 1887,  This novel has no less than 11 occurrences of ‘credit card’, but it is unclear what form these cards took.    By the 1920s, however, there was a variety of merchant credit schemes in the US.  Early examples included schemes to sell fuel to automobile owners; by 1938 several companies were beginning to accept each other’s cards.  Early cards were printed on paper card, and were easy to forge.

I am beginning to think that the most likely explanation for the credit card mentioned in Day of the Locust was something called the Charga-Plate.  This predecessor of the modern plastic card was in use in the US in the 1920s and 1930s.  It comprised a 2½" × 1¼" rectangle of sheet metal, similar to a military dog tag, and was embossed with the customer's name, city and state.  According to Wikipedia:-

‘ It held a small paper card for a signature. In recording a purchase, the plate was laid into a recess in the imprinter, with a paper "charge slip" positioned on top of it. The record of the transaction included an impression of the embossed information, made by the imprinter pressing an inked ribbon against the charge slip’

That certainly sounds like a form of credit card to me.

Apparently these Charga-Plates were issued by the bigger merchants to their regular customers – like the modern-day store card – and sometimes the plate was kept by the issuer rather than the customer. If the same practice was adopted by hotels, this could explain Nathanael West writing in Chapter 8 of Day of the Locust:-

Soon afterwards the manager called and asked him to bring in Miss Martin's credit card. When he went into the manager's office, he found Miss Carlisle, the room clerk there. Homer listened to what the manager was saying to her.

"You roomed six-eleven?"

"I did, yes, sir."

"Why? She's obvious enough, isn't she?"

"Not when she's sober."

"Never mind that. We don't want her kind in this hotel."

"I'm sorry."

The manager turned to Homer and took the credit card he was holding.

"She owes thirty-one dollars," Homer said.

"She'll have to pay up and get out. I don't want her kind around here."

He smiled. "Especially when they run up bills. Get her on the phone for

me."

If anyone stumbles upon any more early credit card references during the course of their reading, please let me know; it would be great to hear from you!

Consumer Watchdog Slams Card Companies for Poor Customer Service

An undercover investigation by consumer watchdog Which? has exposed  a woefully poor record of customer service from some of the leading credit card providers in the UK.

(Source: which.co.uk/news, January 23 2011).

During the investigation ‘Mystery shoppers’ from Which? phoned the 12 biggest credit card providers to enquire about making a claim for goods bought using a credit card.  Out of a total of 120 calls, only one provided the correct information on money limits for claiming under Section 75 of the Consumer Credit Act. Only 10 out of 120 advisers even mentioned Section 75 of the consumer Credit Act by name, and 71 of the 120 calls failed to give useful and correct advice on making a claim.

For example, an adviser at Lloyds TSB told the researcher to contact the Ministry of Justice, Barclaycard recommended contacting the local authority, and NatWest said they should pursue a claim for an undelivered sofa through ATOL – the insurance sheme  for holiday-makers!

Worst performers in the Which? test were Tesco and Nationwide, who failed to come up to scratch on every single call.  HSBC staff were described as ‘particularly unhelpful’.

Best performers in the investigations were MBNA staff, who passed the Which? Test in 7 out of 10 calls, and were described as the ‘best of a very bad bunch’.

Which? Chief Executive, Peter Vicary-Smith says: 'It’s not as if the rules on credit card claims are complicated. This situation is unacceptable - companies must accept that advice really matters. Consumers are potentially missing out on money they’re owed because they’ve been misinformed. The industry must know the rules, and it shouldn’t be up to the consumer to remind them of their rights.'

Which? says it will be writing to each of the 12 credit card providers they investigated to suggest ways they can improve the information they give out to consumers.

Card Fraud Hits 13 Million Britons

Life assistance company CPP released its annual ‘Card Fraud Index’ report this January, revealing that around 13 million Britons have now been the victims of card fraud. The trend for a reduction in fraud continues, however: 2010 saw an encouraging 3% fall in card fraud, with 7% of the UK population affected compared with 10% in 2009.  A spokesperson for CPP says that this is probably thanks to industry initiatives such as Verified by Visa and MasterCard SecureCode, which have improved card security, especially for online transactions.

Nevertheless this type of fraud remains a serious problem, costing banks, card issuers and consumers millions of pounds annually: a whopping loss of around £440 million on UK cards was reported by the UK Card Association in 2009. According the Card Fraud Index, most (20%) of victims said their cards had the magnetic stripe cloned by illegally adapted ATMs or by a Chip & PIN machine.  Once fraudsters have got hold of this information they can use it to create counterfeit cards and make online purchases.

The report named and shamed the worst cities in the UK for card fraud, with Brighton coming out on top (38 per cent), closely followed by London (34 per cent), Manchester (33 per cent), Bristol and Leeds at joint fourth place (32 per cent) and Edinburgh (31 per cent) (2).   The average amount stolen was £417, but 4% of victims reported losses of more than £2,000.

The card industry continues to implement new measures to tighten security and reduce fraud, but it looks like many consumers are still blissfully unaware of the risks they are running by their complacent habits.  18 % don’t check ATMs for signs of fraudulent tampering, 17% don’t shield their PIN, and 16% allow their cards to be taken out of sight when paying in shops and restaurants.  Fraudsters usually get plenty of time to make full use of stolen or cloned cards, as it takes an average of at least 8 hours for customers to report their card as lost or stolen.

The CPP report encourages consumers to take their share of responsibility by being aware of the potential dangers, and remaining vigilant when using their plastic cards.  Preventative measures such as Card Protection policies help reduce fraud losses by immediately cancelling lost and stolen cards. CPP is an insurance company specialising in Card Protection, Identity Protection and mobile phone insurance.

Future Cyber Attacks Warning

As part of its wide-ranging study  ‘Future Global Shocks’, which is looking into possible disasters ranging from global pandemics to volcanic eruptions, the Organisation for Economic Co-operation and Development today issued a report warning world leaders to prepare for more disruption from cyber attacks.

In the wake of the recent Wikileaks Hacktivist cyber attacks this is already a hot issue for banks, card issuers and internet payment payments, so the advice could hardly be more relevant or timely.  The report, ’Reducing Systemic Cybersecurity Risk’,  was jointly penned by Peter Sommer of the Information Systems and Innovation Group and Dr Ian Brown of the Oxford Internet Institute.  It warns governments that they must make plans to deal with and recover from a wide range of unwanted cyber events, both accidental and deliberate.

It warns of a growing risk of localised misery as a result of compromised computer and telecommunications services, and also points out that these services are essential tools in recovering from all manner of large-scale global disasters.   It identifies possible catastrophic cyber-related events including

• An attack on one of the underlying protocols, such as the Border Gateway Protocol, on which the Internet depends
• Large-scale solar flare which could destroy physical Internet components such as satellites, cellular base-stations and switches

The type of Hacktivist attack recently experienced by PayPal, MasterCard and Visa are judged to be relatively localised and short-term in effect.  The real danger lies in the possibility of cyber-attackers managing to identify targets so far unconsidered by the security community, and to go on identifying and attacking them faster than new security technologies can keep up with them. The recent Stuxnet attack against Iranian nuclear facilities is quoted as an example of this type of threat.

Cyber attackers can be driven by a variety of different motivations ranging  from financial gain to political protest, and from idealism to terrorism; some hackers will try and cause mischief just for fun, to show off their own skill or to highlight weaknesses in security systems.  The report authors doubt that all-out cyber warfare is likely to happen, but warn that the use of cyber-weaponry such as hacking, viruses, worms, Trojans, denial of service and distributed denial of service, root-kits and social engineering, is already wide-spread and looks set to become ubiquitous.

Banks Bash Cambridge Boffins over Chip & PIN Security Leak

Banks have been up in arms, and the UK Cards Association (UKCA) has written a letter of complaint, demanding that Cambridge University acts to withdraw from the internet a research paper by one of its students purporting to show how to defraud the Chip and PIN security system.

Student Omar Choudary of Darwin College caused a rumpus when he published his Advanced Computer Science Mphil research into authentication and mobile security on his own website, including information on how a simple device, called the Smartcard Detective,  could be manufactured for around for £20,  and used by fraudsters to make purchases without entering a PIN.

The UK was the first country in the world to roll out Chip & PIN technology, and  since it became mandatory there in 2006, there has been a dramatic reduction in card fraud.  The technology uses a magnetic strip to hold some financial details on the card account, but, as the PIN number is not stored there, it is hard for skimmers and other fraudsters to extract sufficient information to hack into a card account protected by this system.

Inevitably, both academics and hackers have been looking for chinks in the armour of the Chip & PIN system ever since its introduction. There have been some consumer reports of stolen cards and PIN numbers being used illegally, a claim strenuously denied by the banks and card issuers.

Melanie Johnson,  a former Labour MP and chair of the UKCA, the leading trade association for the cards industry in the UK, complained that the website ‘ oversteps the boundaries of what constitutes reasonable disclosure’ by providing too much detail on how Chip-and-PIN security could be breached.

Her letter, viewable via Mr Choudary’s website, casts doubt on the ability of his Smartcard Detective to defraud Chip & PIN security, and criticises the publication of the information for encouraging ‘nuisance attacks’ on the payment card system.  According to her letter, the police claim that Mr Choudary went so far as to falsify a card transaction in a Cambridge shop without first informing the merchant of his intentions.

In response to this,  Ross Anderson,  Professor of  Security Engineering at Cambridge University’s Computer Laboratory, has accused UKCA of  attempting to gag academics and prevent them from exposing weaknesses in card security systems.

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