Credit cards hold a disproportionately large place in the American economic psyche, with headlines regularly lamenting the fact that credit card debt has reached record levels—and that in our nation’s collective profligacy, we are spending beyond our means.

Plastic Capitalism, Sean Vanatta’s excellent new history of the bank credit card industry, tells the story of how that all came about, focusing especially on the legislative history of the industry from the 1950s through the ’80s. Vanatta, a lecturer in financial history and policy at the University of Glasgow and a senior fellow at the Wharton Initiative on Financial Policy and Regulation at the University of Pennsylvania, brings the period to life by recounting the breakthroughs, controversies, and clashes of the industry’s early decades.

This well-researched book serves as both a valuable contribution to the academic literature on the credit card industry and a tutorial on the nature of legislative interventions in industry generally. Spoiler alert: The industry prevailed over attempts to regulate it. That is a story that Plastic Capitalism tells well, while also offering readers a primer on how industry so regularly circumvents and adapts to laws and regulations so as to render them ineffective.

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.)

This aggressiveness brought concern from lawmakers, Vanatta recounts: “Recalling ‘those catastrophic days of the 1930’s,’ [Texas Representative Wright] Patman anticipated a new source of calamity: ‘If there was ever an unsound banking practice, it has to be the sending out…of millions of unsolicited credit cards to an unsuspecting public.’” These cards provided credit to households, but also lured many into indebtedness beyond their means, provoking a backlash from consumer protection advocates that led to a 1970 ban on unsolicited mailings and greater regulatory oversight through laws that mandated increased disclosure and transparency.

But banks were soon able to circumvent the unsolicited mailings ban through the technique of “preapproved” mailings that did not include the card, which proved a less expensive path to gaining new customers. Aggressive banks were rapidly growing card revenues, but also incurring massive losses as criminals quickly learned that mailings were easy targets for theft. To deal with the resulting deluge of fraud, bankers sought to shift the task of pursuing fraudsters onto the law enforcement community, with poor results due to the overwhelming volume. As a result, fraud expenses simply became another ongoing cost of doing business, amply covered by high rates and fees.

These banks still chafed under the New Deal-era state-by-state usury limits and other regulations they faced. But monumental change—and relief—was just around the corner. In 1978, the Supreme Court handed down its decision in Marquette National Bank of Minneapolis v. First of Omaha Service Corp., which established that governing law for the interest rate a bank could charge on a card was not the law of the state where the customer lived, but the law where the issuing bank was located. It was a unanimous decision, written by none other than William Brennan. The still-quite-liberal Burger Court thus proved not so liberal when it came to money.

That, as the saying goes, changed everything.

Now all a credit card issuer had to do was find a state with permissive or nonexistent usury laws, and it could issue cards nationally priced with any rates and fees it chose. Citibank was the bold institution to first seize this opening. It had long circumvented New Deal-era limitations on commercial banking by expanding into relatively unregulated international markets, so it was of the right institutional mindset to seize upon Marquette. It did so by securing an invitation from the South Dakota legislature to set up shop in the state—a legal requirement at the time—with the promise of moving hundreds of jobs there. South Dakota just so happened to have recently done away with limits on credit card rates. Chase Bank soon followed with its own move into Delaware.

Vanatta concludes the book with this very development in a chapter he titles “Breakdown.” Marquette helped banks overcome many of the New Deal-era restrictions, ensuring the industry sky-high profits and leaving it largely unfettered in its pursuit of ever more cardmembers. Those high profits enabled issuers to flood the nation with offers of yet more cards, whose high rates and fees they skillfully cloaked. In contrast, issuers of lower-priced cards did not have the profits to support aggressive marketing and got lost amid that marketing maelstrom. Part and parcel with this came the proliferation of affinity and co-branded cards, which now dominate the industry and became a large part of my own involvement in it as CEO of one of the nation’s largest credit card issuers with a large portfolio of those types of cards.

The highlight of the book is Vanatta’s recounting of President Jimmy Carter’s egregious credit card misfire only months before the 1980 election—a move that may very well have helped hand that election to Ronald Reagan. It was at that moment that the issues in the credit card industry became directly entangled with both a searing episode in U.S. economic history and a seismic shift in American politics.

People remember Carter for his calling out of the nation’s moral shortcomings in the legendary “malaise speech” of July 15, 1979, and for his seeming impotence in handling the Iran hostage crisis. But just as harmful to his electoral prospects, and far more directly damaging to voters’ pocketbooks, was his use of the 1969 Credit Control Act to instruct the Federal Reserve to curb credit card lending.

This was an exclamation point to the futility of his presidency. By this point, Carter had suffered—and dealt himself—a series of harsh blows: a recurrence of the interminable lines at the pump that came with gasoline rationing, along with voluntary wage and price controls, a plea for Americans to lower their thermostats to 65 degrees, and an endorsement of a national 55-mile-per-hour speed limit to conserve energy, all of which were poorly received.

But imposing credit controls topped all that. Carter’s goal was to curb runaway inflation, which exceeded 13 percent in 1979 and which at that point he had misattributed to “our failure in government and as individuals, as an entire American society, to live within our means.” But, as Washington Post columnist Robert J. Samuelson quipped, anyone who believed credit cards had much to do with the nation’s inflation “probably also thinks you can get to China with a pick and shovel.”

Runaway inflation, in fact, had one simple and obvious source: It came from a tenfold increase in the price of oil in a gas-guzzling nation, from under $4 a barrel in 1973 all the way to $39 in 1979—a direct result of U.S. domestic price controls, the Yom Kippur War of 1973, and the Iranian Revolution of 1979. It was a scourge that would be cured through the deregulation of oil (partially to Carter’s credit), which resulted in a near tripling of domestic drilling activity, bringing oil prices tumbling all the way back to $10 a barrel in 1986.

Carter and his economists had somehow underplayed the importance of the oil price spike, and they further failed to appreciate the direct link between lending growth and GDP growth. Carter’s credit controls brought a contraction in lending that caused GDP to collapse at a dramatic 8 percent annual rate in the second quarter of 1980, the fastest drop in over 20 years, all just before the election. Note that this plunge was helped along by the sky-high interest rates that Carter-appointed Federal Reserve Chair Paul Volcker had begun to induce in October 1979, also with the goal of combatting inflation.

Carter’s credit controls presented a huge opening for Ronald Reagan, who asserted that Carter had “blamed the people for inflation” and “accused the people of living too well.” Reagan had a different culprit in mind—namely, the government itself. “We don’t have inflation because the people are living too well,” he said in a presidential debate with Carter in 1980. “We have inflation because the government is living too well.” In his speech accepting the Republican nomination earlier that year, Reagan said, “The American people…who created the highest standard of living, are not going to accept the notion that we can only make a better world for others by moving backwards ourselves.”

Come election time, Reagan would command 489 electoral votes to Carter’s 49. In Vanatta’s words, Carter’s crusade against excessive credit, “instead of driving a new countermovement against unconstrained credit…was outflanked, cut off, and routed.” Ironically, Carter’s actions provided the bankers—now squeezed for profits—carte blanche to reprice their card plans with annual fees and higher interest rates and blame the President.

For all Vanatta gets right, there are a few things he gets wrong. Foremost is his overestimation of the relative importance of credit cards to the macroeconomy. Credit cards are a convenient scapegoat for almost anyone to point to when it comes to economic woes, and Vanatta takes full advantage of this presumption. He blames credit cards for leading consumers down the path of irresponsibility and for pushing the entire U.S. economy fatefully toward “financialization”—that unhealthy state in which the financial sector becomes oversized relative to the rest of the economy.

Cards can be a problem, but a relatively moderate one as compared to other factors. It is important to recognize the scale of the difference: Americans held $42 trillion in private sector loans as of the end of 2023, and credit cards accounted for only $1.3 trillion—a mere 3 percent—of that total. In comparison, mortgage loans, the ugly culprit of the global financial crisis, made up almost $13 trillion, or around 30 percent, of the total, making them a far larger factor in the U.S. economy. Even student loans and auto loans exceed credit card loans in size. In total, private sector debt is a very high 153 percent of GDP, while even at its peak, credit card debt reached only 7 percent of GDP, and has more recently dropped back to 5 percent.

As regards credit cards’ role in bringing about the dreaded financialization of the economy, economies are inevitably “financialized,” with or without credit cards. Increasing financialization is built into the very structure of our economy, and credit cards have played only a very small role. Private sector debt as a percent of GDP, a key measure of financialization, increased dramatically throughout the 1800s and early 1900s, a journey interrupted only by the Great Depression itself. And that rise in private sector debt started again in 1945—well before credit cards loans were remotely a factor—skyrocketing from 37 percent of GDP at that point to 153 percent by 2023.

Secondly, Vanatta states that the path to credit cards came as banks sought to circumvent interest rate restrictions—but many other countries followed that same path to credit cards without having such restrictions in their way, and most did so with similar zeal. This suggests that some portion of U.S. household borrowing would have migrated toward credit cards irrespective of the regulatory landscape, since credit cards remove the need to go to the branch to borrow and then on to the store to spend. Credit cards are popular because they uniquely combine borrowing and spending into a single act.

Another key part of the story that Vanatta omits is the powerful influence that artificial intelligence and computer algorithms and modeling have had on the credit card industry. The birth of these technologies made the large-scale credit card revolution possible—30 years before ChatGPT. The credit scoring of card applications and the detection of fraud had been done manually until the sheer size of the industry necessitated automation.

Lastly, Vanatta leaves out the dramatic entry of non-bank credit card issuers into the industry, which commenced in 1985 with the purchase by Sears of the small Greenwood Trust bank, which Sears used to launch its Discover Card. Non-banks had been expressly prohibited from owning banks until the Bank Holding Company Act was amended to allow ownership of a bank that was restricted to only issuing credit cards. That change, coupled with important innovations in credit bureaus and loan securitizations, opened the door for entire new classes of competitors whose entry squeezed the profits out of the credit card industry.

Major banks like Citibank and Chase had been able to make credit decisions on card applications from existing checking account customers by relying in part on their own history with those customers. But along the way, they began to freely share this hard-gained credit data on their millions of customers with the national credit bureaus. With that, a new card issuer that had not been in business for a single day could make informed credit decisions on customers it had never met, especially after the introduction of the now-famous FICO score by Fair, Isaac, and Company in 1989.

Further, the major banks had been able to fund credit card loans with long-established customer checking account deposits. But in the 1980s, Wall Street introduced new products, especially the “credit card securitization,” which allowed credit card loans to be packaged and sold to investors. That product became a source of funds for these same new entrants to fund credit card loans just as easily as the major banks could—even though they did not have the deposits from a single checking account to call upon. To top it off, these major banks allowed those new entrants to join Visa and MasterCard, thus giving companies that had not made any investment in those associations full access to their powerful national payment system. These developments enabled the emergence of dynamic new competitors, the “monoline,” or single-purpose credit card banks of the 1980s and ’90s, and some of the “fintechs” that came after and offered credit cards, including MBNA, First USA, Capital One, Quicken, and E*Trade. Unwittingly, the banking industry giants that had invented the industry had given away the keys to this lucrative kingdom for essentially nothing and opened the credit card floodgates to massive new competition.

But that is all beyond what a single book could reasonably be expected to cover. And the legislative and regulatory story that Vanatta tells is invaluable. With Plastic Capitalism, Vanatta has made a laudable contribution—an instructive tale of the often fraught interplay between legislators and businesses in a major emerging industry, and a chronicle of how credit cards came to play such a central role in America’s economy and financial consciousness.