Annual fees were first popularized by prestige charge cards such as American Express and Diner's Club. These annual charges were called Membership Fees. The charge card companies justified these fees because card holders were required to pay their balances in full every month and the companies earned no interest from the balances due.

The annual fee made the leap from club cards to the ordinary bank card in 1980 after the U.S. Government imposed a temporary moratorium on the solicitation of new customers for bank card companies. This was done in the hopes of cutting runaway inflation. The card issuers saw this as a chance to earn more money from their existing customer base who suddenly found themselves without any options thanks to the hastily passed government initiative.

After the moratorium was lifted, card users left the fee in place with a justification that annual fees kept interest rates low because it provided a way for the banks to offset losses from fraud and the rising number of personal bankruptcy claims. There was little outcry from the public and business went on as usual.

The first sign of trouble on the horizon came in 1990 when long-distance giant AT&T (American Telephone and Telegraph) entered the credit card industry with the hopes of offsetting their declining long distance revenues. Looking to raise the visibility of their new card in an already crowded marketplace, AT&T made a big advertising splash with their “No Annual Fee Credit Card!”

The response from consumers was overwhelming and the panic spread quickly through competing banks that were seeing their long-time credit card customers defect to upstart AT&T. That one incident, which bankers still call “The Big Scare”, marked the beginning of the end of the annual fee for most people.

Today, American Express still charges their membership fees although some of their interest-bearing products come fee-free. Most banks issue fee-free credit cards to their customers with high credit scores and save the fee-based offers for lower scoring customers and customers with scores so low that they can only qualify for secured cards.