Making Credit Convenient: Credit Cards and the Political Economy of Modern America

Abstract

Making Credit Convenient begins with a simple question: How did credit cards become so central to American economic life? In the 1950s, when its analysis begins, that outcome was hardly obvious. Then, the nation’s place-based regulatory structure confined commercial banks to individual states and gave states primacy in constructing local credit policy. Locally-regulated finance, however, constrained banks’ ability to profit from mass-consumerism, and bankers eagerly sought to expand beyond their restricted markets. Credit cards offered a novel way forward. Yet, as bankers built new, nationwide credit networks, they were confronted by consumer and labor groups who wanted the shopping convenience credit cards offered without the high interest rates bankers charged to make card plans profitable. A decades-long political contest ensued over who would reap the benefits from the new credit systems, and who would bear their costs.

Unexpectedly, this contest was largely waged at the state level. There, bankers worked through legislatures and courts to craft the legal rules that made credit card markets function and protected card systems from fraud and default. Consumer groups, in turn, secured state protection from high credit prices and new problems like fraud liability. For a time, state law tightly constrained credit-card profits. Eventually, however, the tension between mobile credit and the nation’s place-based regulatory structure became too great. With cards, bankers drove a spatial reorganization of American finance, culminating in the early 1980s when a cohort of bankers relocated their credit-card businesses to states with less restrictive regulations and issued cards nationally. Delaware and South Dakota became “on-shore” financial havens, where banks connected far-flung consumers with volatile, global capital markets.

In uncovering this story, Making Credit Convenient shows how bankers manipulated the United States’ system of federal sovereignty to foreclose democratic accountability in state-regulated financial markets, giving rise to unrestrained consumer credit. In doing so, this work revises recent accounts of financial change that privilege federal policymaking, credit securitization, and exogenous technological and market forces. Instead, it argues, state-level political actors shaped the adoption of novel financial technologies, and, when guided by motivated firms, helped move finance to the center of Americans’ economic lives.