The book begins with a discussion of the 1930s-era federal and state laws and regulations that were put in place to prevent another Great Depression, since it was believed that banking excess had brought the Depression about. Those included the Glass-Steagall strictures on the types of business a bank could transact, usury limits, and restrictions on branching and interstate banking, all of which served to frustrate the industry.
Against this frustration, the postwar years brought a burst of household spending that led banks to boost their consumer lending initiatives, including in the new world of charge account banking, which began in 1953 with the groundbreaking Charge-Rite program. Charge accounts, whereby a customer could purchase goods at a given store and be billed for them at the end of the month, would morph into credit cards, which banks issued to their customers while enrolling their merchant clients to accept the cards as payment. Vanatta argues that banks pursued this in part because “revolving credit,” a line of credit that could be accessed and repaid as the customer chose as opposed to a fixed loan amount, was not restricted by New Deal-era usury limits. Suddenly, customers could much more readily buy a suit or get a meal and not shell out cash.
The success of these programs led to their rapid expansion, most forcefully by California’s largest bank, the Bank of America, which began to franchise its credit card program to other banks across the country. A group of banks that had been excluded from the Bank of America program then developed a competitive credit card association called Interbank. Cards issued in these two programs would be accepted by the merchants of all their participating banks, effectively creating powerful nationwide payment networks. Over time, these would evolve into today’s Visa and Mastercard.
By the 1970s, banks had begun to view these programs as not only profitable in and of themselves, but also as a way to circumvent prohibitions against interstate banking. They mailed millions of cards across the country in a race for market share. As Vanatta writes, “At the end of 1965, 68 banks operated credit card plans, and few competed against other banks. Four years later, 1,207 banks operated card plans, all competing for shares of local and regional markets.” Bankers believed that these cards would serve as the hub of their relationship with households and an ideal platform for cross-selling other bank products. (It was a belief that never panned out. Not only would cards never effectively serve as that hub, but they also became increasingly independent of any local banking connection.)