Credit Card America


In 1987 Robert Townsend charged $100,000 on his fifteen personal credit cards to finance the production of a major motion picture, Hollywood Shuffle. It was a big risk, a desperate gamble that the movie would be successful and pay off the bills. It worked. Most Americans go through life making credit-card gambles these days, though on a much smaller scale, charging their clothes, furnishings, vacations, toys, and more in the hope that they’ll have the time and ultimately the money to pay it off. It’s hard to imagine that a few years ago you couldn’t charge tickets to a theater, let alone the making of a movie. Now you can charge virtually anything—and some things you must charge: pity the soul who tries to rent a car with mere cash.

Our love affair with—and subsequent marriage to—the credit card was launched in 1950 by an embarrassed businessman named Frank X. McNamara. According to the story he told so many times it became a legend, one day he finished a meal in a fine New York restaurant and discovered he had no cash to pay for it. Credit cards for restaurant meals were as yet unheard of, so he called his wife and had her rush over with money to bail him out. His predicament gave him the idea that would revolutionize the American way of spending. He invented Diners Club.


McNamara, thirty-five, was well prepared for the job; he was a credit specialist for a credit company in Manhattan. He founded Diners Club in the spring of 1950—not long after that lunch—on just $10,000 put up by his partner and attorney, Ralph Schneider. Within a year about two hundred people had been persuaded to carry the world’s first multiuse charge card. For an annual fee of three dollars they had the means to charge meals at any of twenty-seven restaurants around the city.

By the end of 1951 more than a million dollars had been charged on the growing number of pressed-paper Diners Club cards, and the company was turning a profit and starting to pay off its $58,000 debt. But nobody yet foresaw the makings of a multibillion-dollar international in dustry—least of all McNamara. He sold out to Schneider in 1953, for $200,000. He realized that many Americans were suspicious of the basic idea of credit, and he thought they would remain so. As Lawrence Lockey, dean of the School of Commerce at the University of Southern California, wrote in 1954, “Deep in our cultural heritage is the feeling that a man should not live beyond his means. From Ben Franklin’s Poor Richard to Mark Twain’s Pudd’nhead Wilson, we have been told that the thrifty man pays his own way.” Thirty-seven years later credit itself almost seems to be a part of our heritage.

By the 1950s gas and single-store charge cards were common, but cash was still the standard for all they didn’t cover.

Gasoline and store charge cards were already common by the 1950s, but cash was the standard for every kind of personal purchase those didn’t cover. Schneider discovered that people wouldn’t believe it when they were told that “just by applying, they would get the credit card and we would take the risk [that they wouldn’t pay]. They thought there had to be a catch.”

There was indeed a catch, but it snared the merchant, not the consumer. Devising the system that card issuers use to this day, Diners Club (which is now a subsidiary of Citicorp) underwrote the cards mainly by charging retailers a “discount” of up to 10 percent on each sale; it repaid the merchant that much less than the amount of the sale. Despite the dent in profits that this could mean, retailers signed up throughout the early 1950s, enticed by Diners Club’s persuasive argument that people with cards spend more than those without.

The problem was to persuade enough people to carry the cards. Diners Club turned to promotions such as giving away a round-the-world trip on a popular television show, “The Big Program.” The winners of that prize, Mr. and Mrs. Harold Bortzfield, charged all their expenses on a Diners Club card and made it “from New York to New York without a dime in their pockets.” The shortage of cardholders didn’t last long. Before Diners Club was even a decade old, attitudes toward spending were clearly changing, at least among businesspeople. By 1958 Time magazine could observe that “in the nation’s expense-account economy, nobody is anybody unless he can say, ‘Charge it.’” That same year, newspapers revealed that a Hollywood divorce settlement had spelled out who was to retain custody of the couple’s Diners Club card.


But would the rise of the credit card be a boon or a curse to the citizenry? One writer in 1961 worried about “the effect an excess of on-the-cuff living has on our sense of proportion and values. It is not that we want too many comforts, but we must have all of them now, this minute.” The Nation, on the other hand, welcomed “the democratization of conspicuous consumption” and a world in which “almost anybody can judiciously sample the good life—the realy good life.” The plastic passport to luxury was clearly here to stay.