- Historic Sites
Credit Card America
How we became a nation of instant, constant borrowers
November 1991 | Volume 42, Issue 7
As early as the eighteenth century, wealthy Americans had habitually run up huge debts with retailers and considered it an impertinence to be asked to pay. Stores had found that a businesslike monthly bill could induce most such people to settle up on a timely basis. The first large American store to introduce formal charge accounts was Cowperthwaite & Sons, of New York City, in 1807. In 1905 Spiegel began offering credit terms on everything in its catalogue. The next year Sears began to sell washing machines for installments of eleven cents a week. Most such early credit plans simply added the interest to be charged to the purchase price and divided by the number of payments. The result was a fixed monthly bill that tended to last about as long as the item purchased.
Western Union came up with what may have been the first actual card for charging, about 1914. Around the same time, a few hotels began giving their regular business travelers charge plates—dog-tag-like affairs sometimes known as metal money—and in 1924 General Petroleum, of California, introduced the gasoline credit card.
But the term credit card actually preceded all these pioneer events. It was coined by the visionary Edward Bellamy, in his popular Utopian novel Looking Backward: 2000 to 1887 , published in 1888. In Looking Backward a young man falls unconscious and wakes up at the millennium to an ideal world where cash has been replaced by “a credit corresponding to his share of the annual product of the nation … and a credit card is issued him with which he procures at the public storehouses … whatever he desires, whenever he desires it.”
The first credit card that offered modern revolving-credit terms was developed in the late 1930s by Wanamaker’s, the Philadelphia department store. Customers holding the Wanamaker’s charge-a-plate were given the choice of paying their balances partly or in full at the end of each month. The more they paid off, the more they could subsequently charge. The idea was to help consumers reestablish purchasing power lost in the Depression—and buy a little more than they could with cash.
Wartime lending restrictions kept charge cards from proliferating in the early 1940s, but soon after the war the Universal Air Travel Plan emerged, a cooperative venture joined by nearly every existing airline. For a deposit of $425, a company could issue an unlimited number of UATP cards to its employees. They could then charge flights, and the company would receive a single monthly bill for all of them.
By 1955 the convenience of charging was beginning to catch on in a big way. Diners Club was followed by Trip Charge, Golden Key, Gourmet Guest Club, Esquire Club, and Carte Blanche, all catering to executives. The wealthiest and ultimately most successful competitor was American Express, which introduced its card in 1958 with a mailing to more than eight million customers of various banks. American Express came to dominate the field partly because it could cover the credit it was extending with the float from its traveler’s checks, which are, after all, a form of interestfree loan from consumers to American Express.
As the cards blossomed, so did advertising encouraging consumers to charge up a luxurious life. Carte Blanche promised a nineteen-year-old seventy-three-dollar-a-week clerk named Joseph Miraglia that it would “open up a new and magical world” if he simply filled out an application. He did so and upon receiving his card embarked on a $10,000 spending binge.
Using the card both to charge purchases and to guarantee personal checks, Miraglia visited Las Vegas, Montreal, Florida, and Cuba, staying only in the best hotels. “For a month … I was somebody,” he said after he was finally arrested for passing bad checks. “But next time I’ll pay cash.” He blamed Carte Blanche’s sponsor, Hilton Hotels, for offering him credit in the first place: “I would like to speak to Mr. Hilton about his credit policies. If that man doesn’t watch his credit department, he’ll go bankrupt.”
Hilton, of course, had had no intention of extending credit to Miraglia or anyone else of his marginal economic status. Carte Blanche, Diners Club, American Express, and the rest of the travel-and-entertainment—or T&E—cards were meant for businesspeople on expense accounts. But banks sensed among the less affluent a pent-up desire to spend, and they began cautiously to explore issuing credit cards of their own.
Banks have the advantage of being able to give loans and charge interest. Thus they can issue credit cards that allow installment payments, and thereby profit not merely from an annual fee and the discount charged to retailers, as with the T&E cards, but also from the interest they earn.
Nonetheless, at first, all the bank cards in the 1950s were free to consumers, extended no credit, and charged no interest. They made money solely from the merchant discount. As a result they weren’t very profitable, and many of, the banks gave up on them. Only 27 of the 200 bank-card operations existing in 1967 had been around since the 1950s.