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196- The Fresno Drop

2016-01-19 | 🔗

In September 1958, Bank of America began an experiment – one that would have far reaching effects on our lives and on the economy. They decided after careful consideration to conduct this experiment in Fresno, California. The presumption was that … Continue reading →

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This is ninety nine percent, invisible, I'm Roman, Mars, in September, nineteen fifty eight Bank of America decided to try and experiment one that would have far reaching effects on our lives and on the economy they decided after careful consideration to conduct this experiment in Fresno California. But thinking was no one was much attention the Fresno, so the plan failed. It wouldn't get alot of media attention things were slow back. Then, here regional was not the big metropolitan area. Is today, that's Joseph Restock, I name is Joseph Preussag: I've worked with banks, America. Since nineteen fifty six retires. Ninety minutes, five star, golf as a teller worked. Our way up and most of us young fellows, did Joseph was there when all this went down and so in September of nineteen, fifty eight Bank of America sent out sixty thousand pieces of mail to people in Fresno inside
with a little plastic object has become an equal parts, emblematic of opportunity, convenience and that he's talking about the credit card. That's reporter they'd Burke here to tell you what I'm talkin about bank of them. Erica had recruited about three hundred merchants and Fresno to accept this new payment system, and they asked employees like Joseph to hand credit cards out to people. They knew We did. We passed around your friends and you know the neighbors that's thought, but as for Joseph most sceptical about using a credit card himself but I don't remember. I took a card life better known her if I waited a couple years, but dont go as Baker. You really believe in credit by some minor Well, you have to pay back dangerous model like giving money away Joseph wasn't alone The whole town of Fresno was a bit nervous about this new credit card system. The concept of credit wasn't new
but he had never been done quite like this. Going. Back in to say the eighteen hunters, early nineteen hundreds view Head Chris, with a store or some kind of a business. It was kind of a ledger book type, a thing. This Scan Helen back here a new mincemeat test. A new movement is that it someone who studies or collects currency? Not you coins, but its paper money, metals tokens anything this some money or money substitute can is retired now, but he used to work at the american Pneumatic Associate mission, new, Miss Matic, so back late, eighteen, hundreds every place from the corner bar to the local pharmacy allowed patrons to keep open tabs big record everything in a lead your book and allow their customers to charge a bill that they typically pay back at the end of the month. For businesses. This was an accounting nightmare stores could have hundreds of accounts
spilling terms for a dollar here and a dollar there and with each chart a shopkeeper would have to all out a ledger book and look up a customer's records just to complete the transaction, eventually store owners cut down on some of the paperwork by assigning customers, account numbers which they would scribe on little tokens, most of them are more rounder oval a hole in them and they had a number on him, and that was your account number can has it election of a few dozen of these old credit tokens. Many dating back to the early twentieth century have one here, Sir, says poker, harness pioneer garage, but it has a head of an Indian on it. And and then the it has a number eight thirty, nine after credit tokens came something called charger plates. They look like little dog tax for the army. They were metal and had your name and information. Imprinted on shopkeepers could make an impact,
of your personal information directly onto the bill. Instead of having to write it all down, but the more accounts you had the more charger plates and tokens you had to carry around with you. It still a great system for the retailer or the customer, so in nineteen forty, nine, a New York businessmen named Frank, Ex Mcnamara, came up with an idea for a single charge card that could be accepted at multiple establishments. He called it the donors club card and with it you could make charges at a number of New York, restaurants in hotels, but, unlike the a card of to day. You could only use your diners club card in certain places, the he had caught on someone about three thousand people signed up mostly businessmen. It wasn't a smash success, but still the bank started to see an opportunity. So he added giant change, taking place
a right around war, war too, and especially in the aftermath of war or two in the american economy, was the basically the only a calm in the world. It was still standing. That's Jonah, Sarah columnist, the New York Times and author of a piece of the action how the middle class joined the money class people. I haven't gotten through the war settling down out. Married raising, KIDS Lanka live in the suburbs. There were suddenly things. It wanted to buy a refrigerator, for example, or, as came a devolved, to tell us. So maybe you'd have a seers account. You could buy. Things there and pay your bill at the end of the month. We didn't have an account. With a store you'd have to go to a bank and get a traditional loan for any relatively large purchase. Whether it was car. Whether it was a sulphur weather refrigerator did go to the bank s
single time, every single time you know you have to do now, have collateral to pay for every single time. The banker would have to figure out what you were good credit risk. It was. It was a pretty cumbersome process both for the consumer and for the bang, bang America wanted to find an easier way to make these small loans Bank of America was in the nineties If these, the premier consumer oriented Bank in the United States Bank of America, really believed in the idea that it would grow by helping numerous. So it was Bank of America that decided that they would basically give clients a card that they could put in their pockets. That would give them roughly affair hundred dollar line of credit like the Diners Club Bank of America, one of their customers to be able to use their card anywhere, not just at restaurants, where the donors club had to be paid off within sixty days, Bank of America would allow its customers to pay them back whenever they wanted. They called
new credit card, the Bank America card- you could stay it all down, you could pay part of it back. You could pay it all back. You didn't have to get a banker to approve your purchase and you didn't have to pay them. Bank back by any specific time. They coldness revolving credit. The card was essentially an instant loan It was alone with an interest rate attached. This was one of the proof and shifts in the way people handle money instead of the bank or being controlled in control of your money of setting the terms for how you dealt with your money with a credit card You were the one setting the terminals and you were the one making the decisions about what to do with your money Oh all Bank of America had to do was convince retailers to accept credit cards as payment and convince people to use them Now because they were a new invention and because people didn't really what they were and because it,
laws surrounding credit cards, the way they tested the card was they simply sent a mailing to. Basically, every Bank of America, customer and Fresno California, which brings us back to Fresno. They called it. The Fresno dropped the Bank of America, mail about sixty thousand credit cards all over the city Fresno. Had become a laboratory for the future of personal finance. Fresno drop, was supposed to be a controlled experiment with a bank could test the concept and work out any kings, but within A few months of the Fresno credit Card Drop Bank of America. I've got word that one of its competitors in California was planning a similar programme, so Bank of America quickly expected. Mass millions went out in the central Valley, cities of Modesto and Bakersfield and then eventually to the states, bigger cities of Sacramento San Francisco and LOS Angeles within ten months
the Fresno drop more than a million bank America had been bailed out across California once the car. It had begun. Saturating the bigger cities, fraud and theft were rampant. People would go around two mailboxes in the suburbs and steal cars and days when they knew the cards were being dropped. The system was being abused, but this Some was also randomly mailing out. Pre approved credit cards that allowed any one d by up to five hundred dollars of whatever they wanted. No dead people getting card dogs we're getting cards, it was just very, very Willy nilly, despite these Maybe it's the cards didn't catch on right away. It was predicament stores, to accept them, they had to pay a percentage of the sale to the bank and it was hardly customers to you. And when people did start using the cards, they didn't always pay the money. Back, which was a bit of a surprise to Bank of America People had mostly been pretty good about paying back traditional loans and what they forgot was.
Those days when you made alone, the customer look, the bank or in the eye, and the banker look the customer the eye and they both had this kind of relationship, and the customer would not want to let the banker down, whereas with a credit card, It was an anonymous thing. This anonymity meant one in four people weren't paying their credit card debts in nineteen. Fifty about a year after Bank of America, did their first mass mailing and Fresno mailed out more than two million beg Americans, but they had. A single set from their experiment. In fact, they lost about twenty million dollars, and so the bank, started, making a few changes. They really started to think about it differently, Bank of America set up a collections department and an anti fraud unit. People who were paying their bills had their car revoked and the government also started to regulate the credit card industry in nineteen. Sixty eight, the truth and Lending ACT made it illegal to male out credit cards to people who never asked for one from
I point onward. Instead of getting a card in the in the mail You got instead of solicitation to apply for a card which it in one form or another exist to this day wasn't until nineteen sixty one three years after the Fresno drop that Bank of America actually turned a profit on their crazy credit card experiment. By nineteen. Sixty eight they were making about. Thirteen million dollars a year, the bag. America says which became a nation. Wide system eventually became known as visa and the other cards that had competing with back America. They all a consolidated and they became Mastercard, the major, Our companies now make lots and lots and lots of money every year, which is great for them, maybe not so great for the rest of us,
today over. Seventy percent of american adults have at least one credit card and the? U S as a whole, has about nine hundred billion dollars in credit card debt into those nine more credit card reform was passed, it prevents arbitrary. Interest hikes stops credit card companies from specifically marketing to college kids, prohibit certain types of abusive fees but a lot of people, think more reform is needed. The expense meant in Fresno, created a tool that made buying thanks much much easier. You no longer have to put on a suit and a time go to the bank for alone. Every time you want to get yourself something nice, the credit facilitated and unprecedented amount of economic freedom for the middle class, and that ass that- was intentional and maybe even noble but simple to keep in mind that, first and foremost, the credit card was designed to make money for banks and everything about their design, betrays that primary objective. Records don't have to be complicated. They don't have to.
Turkey, but they do They were design that way and the baby is but. An unpleasant? I gotta play a bigger stack, get it freeze out all along. Ninety nine percent invisible was produces. We buy Nick Berg with Kitty mingle, every twelve men same reads: Van critical Stead and me roman Mars. The new kids at ninety nine p, I'm starting to day, are Delaney on ensuring himself. We are
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Transcript generated on 2020-02-14.