Simple answer: the merchant took a chance.
They didn’t.
Now the next question is, what happened if you charged something that put you over your limit.
I disagree. I think the replies have been very informative, detailed, and complete.
Assuming it was below the merchant’s floor limit for ringing up and checking, you’d get away with it. However, you were still legally bound by the purchase, and in fact it was even more binding because the bank might ask you to repay the entire amount on the next bill. The other thing to remember - which applies to a lot of the questions in this thread - is that there was a different attitude to credit even ten or twenty years ago. It was treated way more seriously by merchant, consumer, and bank alike. People treated credit with a lot more respect. You could make a lot of small purchases over your limit, and doubtless some did abuse this, but most didn’t. The entire mindset was different. Sub-prime crisis anyone? There’s a reason why that’s a 2008 and not a 1988 phenomenon.
Old fart that worked taking credit cards back in the day.
In my gas station back in the day (1967-1970) If the sale was under our floor, we took your card, made an imprint, and had you sign it. The floor was about $35 IIRC. (When gas was 0.29/gal for regular, this was a high floor.) A repair might hit, it or might not.
If the amount was above the floor, we called an 800 number. We got an approval or a decline.
If someone abused a card, we got a letter telling us to pick up the card if someone tried to use it. A $25 or $50 dollar reward was offered.
Typically we had about 3 or 4 of these letters hanging in the office at any one time. If we took a card under the floor, and it was bad, the gas company took the loss. if it was over the floor, and we did not call, we took the loss.
Something that hasn’t been mentioned was department stores that had vacuum tubes that went to the credit office. A credit transaction would be handled on the floor, and sent via tube to the credit office. A clerk would check to make sure the account was good, and approve the sale and send it back down via the vacuum tube to the sales floor. Took several minutes. Sales clerk would often wrap your items (if a gift) during this time.
boy have things changed.
I found out years ago that the expiration date was never checked during the order-taking procedure, so, just for kicks, I made up a random date each time I used the card online or over the phone.
That always worked, until it backfired and the card was refused because the date wasn’t correct. Now if I accidentally put in the wrong date in an Internet transaction, within hours, I get an automated phone call telling me that some suspicious activity was detected and I have to call some number to clear it up.
It’s easy to put the wrong date in a computer field, so they must make a lot of automated phone calls.
The book was how Navin Johnson found out that he had Mrs. Nusbaum’s stolen credit card.