Credit Cards in America: A Brief History

[Jack White]

Although bank credit cards are a relatively recent innovation, typically marked by the establishment of the “businessman’s Diner’s Club card” in 1950, U.S. society has historically depended upon the availability of consumer credit. For example, farmers depended on store credit before the harvest of their crops in rural America, whereas industrial workers were issued “script” for purchases in the company store that were later deducted from their wages. Significantly, both forms of consumer credit often produced a form of debt/labor servitude. This common experience was recounted in the famous lyrics of Tennessee Williams, “I owe my soul to the company store.”

Financial responsibility

Even in the mid-twentieth century, local merchants frequently extended informal or “open book” credit to their most reliable customers since it fostered customer loyalty and future business sales. Not surprisingly, strong social ties between merchants and consumers in small-town America reinforced the social control functions of debt (stigma and shame) and work discipline (dependence on future credit). Public scorn for failing to repay one’s debts was an embarrassment to the debtor as well as to his or her extended family and was avoided whenever possible. As a result, persistent indebtedness often took on moral and religious overtones, and thrift was equated with godliness, self-discipline, and hard work. These social factors encouraged and limited the number of people who failed to pay off debts.

When widespread violations of these Puritan-inspired values occurred in the early twentieth century, a calamitous loss of family homesteads and personal property resulted during the Great Depression. Today, these devastating experiences still constitute powerful intergenerational reminders of the social and economic consequences of failing to “save for a rainy day.”

After World War II, the rising U.S. standard of living combined with the rapid proliferation of suburban residential communities encouraged new forms of consumer credit that were not based on personal relationships. Furnishings for new homes and the purchase of new automobiles required greater amounts of consumer credit loans than were traditionally available from local banks. The unprecedented geographic mobility of postwar America undermined informal credit networks, because small businesses were reluctant to offer informal credit to unknown or potentially transient customers. These factors contributed to the profound transformation of Main Street USA, from downtown business districts with primarily small shopkeepers to suburban shopping malls with their corporate retail “anchors.” Large retail stores such as Sears, Roebuck and Montgomery Ward included formal consumer charge and proprietary credit card accounts.

These credit programs were designed primarily to reinforce customer loyalty since they could not be used in other stores. Even with high annual finance charges, most proprietary credit card application programs were not profitable due to high account management expenses.