Chapter Three

How Commercial Bankers Discovered Consumer Credit

THE FEDERAL HOUSING ADMINISTRATION AND
PERSONAL LOAN DEPARTMENTS, 1934–1938

ON FRIDAY, MAY 4TH, 1928, on New York’s East 42nd Street, in a little basement room containing only three desks, four employees, a dozen chairs, and a teller’s counter, National City Bank opened the nation’s first personal loan department.¹ Announced to the public with only one line in a newspaper, hundreds of applicants nonetheless overwhelmed the bank on its very first day.² The next day, in a vain attempt to contain the crowds, “shock troops from around the bank” along with a dozen desks, according to one bank employee, were moved into adjacent corridors.³ Carpenters and painters worked through the night to convert an adjacent second story into more office space for what would become an incredibly popular department of the bank. In its first year alone, the personal loan department extended $8 million over 28,000 loans.⁴ The Herald Tribune remarked that as New York had been so successful in its campaign against “unscrupulous loan sharks . . . there has been developing a dearth of borrowing facilities for small-salaried individuals and ‘the National City Bank [had] step[ped] into the breach.’”⁵ Newark News, Evening World, New York Times, Herald Tribune, and other New York-area newspapers all praised the new personal loan department of National City Bank.⁶

Curiously, despite the popularity of the department and despite the prominence of National City Bank, one of the country’s largest commercial banks, few other banks opened their own personal loan departments in the late 1920s. Nonetheless, by the end of the 1930s personal loans were a standard part of commercial banks’ offerings. Why would banks begin to loan to consumers in the middle of the 1930s when jobs were so precarious, rather than in the 1920s when prosperity reigned? In answering this question, we can better understand how small loan lending to consumers became essential to the viability of the core financial institution in American capitalism—the commercial bank. At the same time, we will also see how powerful federal policy can be in transforming the most basic practices of capitalism, since it was through a previously overlooked federal program—the FHA’s Title I loan program—that bankers learned consumer lending could be a good idea.

To Think Like a Banker

Though National City Bank publicly claimed profitability and that its borrowers repaid their debts, in the midst of the prosperous 1920s other commercial bankers remained doubtful about the viability of lending to consumers. Why take a risk on lending to them when business investments were doing so well? To today’s reader, this hesitance seems like madness—especially since National City Bank, the forerunner of today’s Citigroup, remains one of the country’s largest banks—but to bankers at the end of the 1920s such reluctance was well-founded prudence. Why would bankers not want to lend money to consumers? The simple answer is that banks in the 1920s earned easy profits from lending to business in an expanding economy and had no need to explore new opportunities when their capital was already so profitably employed.⁷ A more complex answer, however, is not only to be found in well-calculated profit margins but in the bankers’ own experiences with prudent lending and the constraints of their institutions, which were not equipped to handle consumer lending.

Experience, more than numbers, guided bankers’ conservative investment practices. Only a wholesale refashioning of that experience would alter their worldview. For smaller banks, capital was not to be gambled on new-fangled schemes and benevolent outreach programs when certain profits abounded. Even National City Bank, initially, saw the personal loan department more as public outreach than a source of profits. The department’s popularity, more than profitability, had been the impetus for its creation. Roger Steffan, an ambitious vice-president at National City, who both came up with the idea for the department and oversaw it, was supervised by the head of public relations, not the head of commercial loans.⁸ National City Bank, with its amassed millions in capital, could perhaps indulge in some public relations and progressive reform, but most of the nation’s banks were more comfortable sticking with what they knew in the world of business finance, which in 1928 was working out pretty well for them.

Commercial bankers had long been uncomfortable with personal loans. Commercial banks had always made small loans, on the side, for good customers who borrowed large sums for their businesses. These “accommodation” loans, however, never made any money. If a businessman did a lot of business at a bank and happened to need a comparatively small amount lent on the side for personal use, the bankers, grumpily, would accede, in the name of the other accounts. These accommodation loans were a nuisance to bankers since they caused a lot of paperwork for no profit. Capital would be locked up as the loan was repeatedly borrowed, preventing the money’s investment in more lucrative and sound schemes. Rather than a business loan, accommodation loans should be thought of in the same way that a bartender might lend money to a regular patron.⁹ This form of consumer credit, emerging out of class-based social relationships, had more in common with mutual aid societies and ethnic lending than with commercial banking.

For those customers that the banker did not know, in whose social and economic life he was not privy to, personal loans were judged by the conservative standards of commercial banking practices—and found lacking.¹⁰ The habits of commercial lending—the methodical review of each borrower to make sure he had the collateral to cover the loan—made personal lending seem foolhardy and unsound. People who wanted to borrow would be exactly the sort of people to whom the bank would not want to lend.

It was to those people, as other bankers feared, that National City Bank lent its capital. James Perkins, chairman of National City Bank, who by all accounts was as genuine as he was hard-working, believed that “behind almost every loan is a story of good citizenship.” Without practical experience in personal lending to guide them, early experiments were guided by the moral outlook of bankers. To Perkins, loans for moral purposes that improved the lives of families in need were, by definition, worthy. Childbirth expenses, “lives . . . saved by timely surgical attention,” and children’s education were all worthy goals for personal loans.¹¹ Moral ideals of lending dominated, or at least equaled, those of profit. Loans, as one bank’s guidelines for lending stressed, for “some luxury or whim that he ought not gratify,” even if they fit the borrower’s income, were not to be made.¹²

The very unexpectedness of need, in contrast to installment credit, morally justified these personal loans. A common moral criticism of indebtedness was that it resulted from irresponsibly managed budgets, from consumers who refused to save for what they wanted. Consumers who used installment credit wanted things more than they wanted the satisfaction of living within their means. Installment debt, from the bankers’ moral vantage point, was an irresponsible choice—a failure of character. In contrast, a personal loan was taking responsibility for life’s uncertainties. Childbirth, illness, funeral expenses, and other hazards of life could not be in the same profligate moral category as fast cars and modern furniture, and while these early lenders would happily lend for misery, they would not lend for luxury. This moral view of debt sharpened the contrast between personal loans and installment debt, giving personal loan bankers a justification for their lending, but it also firmly circumscribed the kinds of permissible loans.

Bankers who managed personal loan departments saw the existence of these unexpected expenses as the only justifiable reason for personal borrowing. Charles Mitchell, president of National City Bank, remarked in 1928 that “while it is not our purpose to encourage anyone to borrow except under the stress of circumstances, we have faith that loans so made can and will be paid where incident thereto the spirit of thrift can be kept alive.”¹³ The Hudson County National Bank, one of the few banks to follow National City’s early lead, used this notion of worthiness to guide its lending. One of the earliest banks with a personal loan department, it would “not entertain a personal loan under any circumstances to help buy a luxury or for speculative purposes.”¹⁴ Lending such credit was as much a social service as an opportunity for profit. In contrast, everyday lending only encouraged the debtor to improperly budget, which led to both moral and economic peril. While we today might doubt the sincerity of their moralistic language, the strange repayment plans for these loans demonstrated that bankers put rehabilitating debtors’ habits before profitability. The practices of lending reflected the economic as well as moral assumptions behind the loan.

Banks, with these moral purposes in mind, conducted loan repayment differently than we would expect today. As important to the bankers as repayment of the loan was inculcating habits of deposit in debtors so that they learned to save. Before they were allowed to borrow, debtors had to learn deposit. National City Bank and other banks that followed its example, like First Wisconsin National Bank, required borrowers to deposit at least $1 into a savings account at the time that the loan was made.¹⁵ According to the bank’s instructional pamphlets, borrowers would deposit into this savings account at fixed “monthly, semi-monthly or weekly intervals” the appropriate fraction of the loan so that at the end of twelve months the loan would be “paid out of the funds which [had] accumulated in the savings account.” These accounts, though dedicated to repay the loan, still earned interest on the savings. At the end of the twelve months, borrowers would pay off the loan in total from the money available in this account, mimicking the practice of business loans, which were paid off in one lump sum. In this moralizing hybrid, borrowers both received and paid interest on the loan. At the end of the repayment term, borrowers would also still have a savings account, which the bankers hoped they would continue to use to avoid any future need to borrow.

Beyond the loan, bankers intended this savings account to inculcate the habit of thrift. Perkins emphasized that the monthly deposit “maintains the thrift spirit of the borrower and does not develop a debtor attitude.”¹⁶ Bankers saw personal loans not only as a way to help borrowers in a moment of crisis, but also to encourage thrift to prevent borrowers from needing to turn to the bank again. As one banking association economist described it, personal loans were only “a step to saving.”¹⁷ The “concrete experience” of depositing funds every month, even if that money was earmarked for the bank, instilled in depositors virtuous habits of thrift, which, from the bankers’ point of view, was an important as the interest banks earned on the loan.

After National City Bank began its personal loan department, for each positive endorsement in the banking trade journals or popular press there were as many, or more, that negative assessments. Personal loan departments did not spread. Even by the time of the Depression, when banks became increasingly desperate for investments, other commercial banks continued to resist entering consumer lending and the conventional wisdom continued to assume that such lending could not be profitable. Writing in a banking trade magazine in late 1932, a Midwestern banker, A. Cornelius Clark, made the case that despite experimentation with personal loan departments, such schemes could not be—by inspection—widely profitable.¹⁸

Clark’s arguments resonated with the conventional habits, experiences, and reasoning of the commercial banker. To be sure, the appeal of personal loans was seductive. A banker could imagine that borrowers who took out small loans might start to borrow business loans at the bank or at least deposit their savings there. Clark estimated that some bankers thought “20% or more of borrowers may be educated into savers and their friends [might] be induced to become customers of the bank.”¹⁹ A typical charge of $8 for a $100 loan over the course of 12 months represented a 16 percent interest rate (with an average balance of $50, the $8 was a 16 percent rate). This return would certainly have been appealing to bankers at first glance, since 16 percent was considerably more than a business loan even in the best of times.²⁰

Clark, echoing the honed experience of commercial banking, dismissed these flights of fancy with hard-nosed facts. After examining the figures he had available from “six larger banks whose analysis departments have kept close check of expenses over a period of three years or more,” he reckoned that for each $100 lent, a bank would earn a net profit of only 11 cents—nowhere near the gross profit of $8 because of the added expenses for staff, investigation, advertising, and collection.²¹ The staff for personal loan departments had to be at least double that of a similarsized commercial lender, he reckoned. Keeping track of the monthly payments created a lot of paperwork, in contrast to the usual business loan that was terminated with a single deposit.²² Investigating borrowers would be a Herculean task, at least if it was done as thoroughly and traditionally as commercial bankers expected for such a loan.

Part of the difficulty Clark and other bankers had in apprehending that a personal loan department could be profitable was their failure of imagination. When the commercial banker pictured a personal loan department, he envisioned exactly the methods used for commercial loans only for much smaller amounts. He called or wrote to every reference of every borrower. He went over the applicant’s financial statements in detail, ascertaining the complete inventory of his assets and liabilities. He attempted to understand every aspect of what the borrower intended to use the money for. He imagined having to hire a vast staff to process each of these individual applications. For such small amounts—$8 for all that work!—the only way to make sense of the claims of profitability was to attribute them to something as other-worldly as Hercules himself. The profits of some experimental banks could not be due to a sound system of credit analysis, according to Clark, but to the preternatural senses of bankers “so adept at reading character and approving loans that their losses are reduced to almost nothing.”²³

Without the requisite mystical ability of this exceptional loan manager, whose capacities could not be reproduced through study or training, and whose very existence seemed suspect, it would be unsafe to enter the personal loan business. To the reader of the journal, looking at Clark’s argument, buttressed as it was by tables of expenses, careful calculations, and metaphysical injunctions, the easy profits of the personal loan department seemed only to be an easy way to lose money. Commercial bankers’ habits and professional literature strongly resisted personal loans; it would take a widespread—and profitable—experience with consumer lending to change their minds.

To Act Like a State

The transformative experience took the unlikely form of Federal Housing Administration’s Title I loan program. Created by the National Housing Act of 1934, its proponents intended the Title I modernization loan program, like the rest of the Housing Act, to stimulate the Depression-era economy.²⁴ Home owners could borrow money to repair their roofs, install electricity, or buy nonmovable durables like oil burners and air-conditioning systems.²⁵ These loans were expected to be relatively small—only a few hundred dollars. Title I loans, like their Title II counterparts, were meant to be affordable so as to stimulate as much demand as possible in the hard-hit economy of the Depression.²⁶ For home owners needing repairs and modernizations, these loans presented an affordable and easy way to improve their standard of living.

For bankers, the loans guaranteed profits. As discussed in chapter 2, the FHA did not lend any money directly to consumers, but relied on the profit motive of private capital to supply the financing. The government created an insurance program for lenders, so that in case of default bankers would always get back the principal of the loan, allowing them to take on more risk than they ordinarily would. The interest rates would be low, but through the government insurance program the profits would be risk free. Crucially, the Title I loan program connected a demand by consumers with a supply of capital that, in its absence, the market could not. The effects of this intervention went far beyond home repair however, as the program remade the institutional structure and intellectual assumptions of commercial banking.

By the time that the FHA announced its Title I program in 1934, formerly skeptical bankers had become desperate for sites of profitable lending. Investment opportunities in such uncertain times remained relatively hard to find as businesses avoided borrowing to expand their operations.²⁷ Perkins, the National City Bank chairman, remarked in a 1934 letter to Giannini, the Bank of America chairman, that National City’s “excess reserves are very big. It is almost impossible to find any use for money in credits that we are willing to take, and the rates are terribly low.”²⁸ Businesses trying to survive the Depression had no incentive for expansion and relied, to an unusual extent, on their internal funds.²⁹ While consumer spending fell by a fifth between 1929 and 1932, nonresidential business investment had plummeted by more than two-thirds.³⁰ Business had stopped borrowing.

Every year through the 1930s the percentage of commercial loans in bank portfolios dropped.³¹ A 1938 Conference Board survey of 1755 firms, mostly in the manufacturing sector, showed that 91 percent had “no bank credit experience.”³² No sensible businessman borrowed. Firms did not need the money bankers were willing to lend. For most banks, like one small Missouri bank, their “income [had] been greatly reduced due to the fact that the demand for good loans [had] fallen off.”³³ Good loans, in this common view, were business loans. Without profits from lending, banks could not offer interest to depositor’s funds for long and would soon be out of business.

When the FHA introduced Title I, however, all of that changed. The guarantee of profits through federal insurance mitigated bankers’ suspicions about consumer lending, and bankers opened FHA Title I loan departments. Though bankers remained skeptical, with a federal mandate and guaranteed profits, and no business investments to be found, bankers were willing to try something new. Though commercial banks had little to do with consumer loans before Title I, commercial banks became the main source for Title I funds, providing over 70 percent of all FHA-insured funds. Over 90 percent of all FHA lending institutions were commercial banks. The combined lending of building and loan associations, finance companies, industrial banks, credit unions, and savings banks comprised slightly less than 10 percent of all Title I lending institutions. Though personal finance companies did loan more money per firm, it was commercial banks that opened the most new loan departments and with their greater capital pools loaned more money. Title I institutionally remade American commercial banking, connecting it, for the first time, with consumer lending.³⁴

That the Title I loan program formed a bridge to personal loan departments for commercial banks was no doubt helped by those that administered the program. As Congress debated the best course to recovery and framed the Federal Housing Act, some of the witnesses to the hearings came from National City Bank. Steffan, who had created National City Bank’s personal loan department, his assistant vice president, Elliot Beams, and an assistant manager, J. Andrew Painter, all prepared testimony for the committee. The testimony apparently got Congress and FHA Administrator James Moffett’s attention and, according to Painter, he and Steffan were “loaned” to the FHA to “help set up the Property Improvement Plan under Title I.”³⁵

Steffan, who had fashioned the first personal loan department, was appointed director of modernization credits to oversee the administration of Title I.³⁶ Though he only served for a few months and then returned to National City Bank, Steffan set the course of the program, touring the country to promote it.³⁷ Speaking before the American Banker’s Association, ten weeks after the program began, Steffan declared that the Title I program was “based on old-fashioned and orthodox principles—to bring together private capital, industry, and labor to do the long overdue job of brightening up American homes—at a fair profit.”³⁸ Steffan believed in the Title I program because of his experiences at National City Bank. Over the previous six years, he explained, the personal loan department had loaned $172,000,000 to 545,000 people with a repayment rate of 99 percent.³⁹ The experience of success convinced him that the Title I program would work.

From Painter’s perspective, for America’s commercial banks the Title I program “was a great adventure.”⁴⁰ Their willingness to enter the new field of lending, he thought, was “a tribute to the readiness of the Commercial banks.”⁴¹ From Painter’s view, “that experience [with Title I loans] was undoubtedly the kick-off for the commercial banks in achieving a remarkable record in providing consumer instalment [sic] credit.”⁴² But bankers’ willingness to try personal loans, contrary to Painter’s account, sprang more from desperation than a lust for adventure. Adventure could have been had at any time, but banks only began to open consumer lending departments after the Title I program began.

The Title I program, Steffan conceded, could not have occurred in any earlier moment. The interest rate of the loans—about 5 percent—was less than commercial bankers ordinarily would have accepted. It was as obvious to Steffan as to the bankers that “a small loan of this kind averaging $432, with monthly payments or deposits, costs relatively more to handle than a loan of several hundred or several million dollars, paid off by the writing of a single check.”⁴³ Steffan reminded his audience of bankers that these were not normal times, and “if bank funds and bank staffs were being utilized to the limit, as they were in 1929, circumstances would not be so favorable[,] but now in most instances a comfortable volume of these loans can be handled by existing staffs.” Excess capital and excess staff that otherwise would go uninvested or be fired could be employed.

When FHA administrator James Moffett seemingly exaggerated Title I as “a novel conception of credit of far-reaching and historic significance,” he might have actually underestimated its consequences.⁴⁴ Through its modernization loan program, the FHA loan system introduced consumer lending to commercial banks. The most plentiful source of capital in the American economy had begun to see consumer lending as a source of profit. In doing so, Title I overcame the habits of practice that held commercial banks out of the personal loan field. Bankers across the country duplicated Steffan’s experiment at National City Bank. Government policies had inadvertently created a market for consumer credit that went beyond the confines of the Title I program.

In the process of discovering the personal loan’s profits, the personal loan became anything but personal. No longer could the businessman go to his long-time banker for an accommodation loan on the side. Loosening social bonds, the applicant for a personal loan confronted not an individual banker but an impersonal system of evaluation and profit. Commercial banks were no longer only for the wealthy businessmen, but for the new middleclass as well.⁴⁵ Personal loans, once the province of the loan shark, industrial bank, or remedial loan society, were brought into the mainstream of capitalist lending—commercial banks. In the process, commercial banks that used to cater only to wealthy businessmen opened their doors to the salaried middle class.⁴⁶

The composition of borrowers at National City Bank and Manufacturers Trust Company, as shown in figure 3.1, reflected these concerns. Personal loan customers were not penurious workers, but as an investment magazine for bankers put it, “dependable people of relatively modest income.”⁴⁷ From the available information, it is clear that the majority of borrowers were the new middle-class of white-collar employees (salesmen, government employees, clerical workers, and professionals) and businessmen. Personal loan departments, although they did not exclude workers, were, unlike small loan companies or remedial lenders, primarily aimed at middle-income Americans, many of whom would already have a savings account at a local bank.⁴⁸ Skilled workers and “miscellaneous” applicants together made up only between a quarter and a third of the borrowers, unlike the borrowers at more working-class-oriented small loan companies.

Figure 3.1. Occupational Percentage of Borrowers at Two Commercial Banks. Outer ring: National City Bank. Inner ring: Manufacturers Trust Company. Source: Irvin Bussing, Report on Some Important Aspects of the Personal Loan Business From the Savings Bank Point of View (1937), “Savings Banks,” Box 99, Russell Sage Foundation Papers, Manuscript Division, Library of Congress, Washington, D.C.

While applicants’ incomes varied widely, their occupations were overwhelmingly middle class. One executive of the Manufacturer’s Trust Company wrote that, “applicants comprise a cross section . . . with incomes ranging from $1,000 to $50,000.”⁴⁹ The qualities that the banks looked for in borrowers matched those of the new middle class—stable income and long-term employment, whatever that income might be.⁵⁰ Seasonal or independent workers were not looked upon favorably. Because they generally dealt with higher income people, who were considered less risky, they could offer lower cost loans than the companies, like industrial banks, that, as one economist wrote, catered to another “economic stratum.”⁵¹ Manufacturer’s Trust Company required a $3,000 a year income but also offered lending at the low rate of 4 percent per annum.⁵²

What applicants borrowed for reflected the needs of this salaried, urban class. Bankers’ self-described “conservative” loan policy covered a variety of purposes, from clothes to medical care. Rather than just what consumers wanted, the numbers in table 3.1 reflect the purposes for which the banks were willing to lend just as much. Medical expenses and loan consolidation drove the personal loan business. Without health insurance, the risk of illness was not only lost wages but medical expenses as well. Where the ethnic and family lending networks broke down under the strain of the Depression, personal loan departments stepped in, offering support for unplanned expenses. It is telling that older patterns of filial loans didn’t disappear as lending became more formal. Five percent of Manufacturers Trust Company loans, around $2,000,000 in 1937, went to help relatives. Borrowers’ unexpected emergencies continued even as banker’s moral motivations were supplanted by profit.

What constituted an emergency for a borrower was not always as simple and noble as needing money for a child’s doctor. Always topping the list of bank loan purposes was debt consolidation. Debt consolidation could mean paying off medical and educational loans, but more frequently it meant the consolidation of installment debts owed on consumer durables in danger of repossession.⁵³ The loans that were consolidated ran the gamut from furniture dealers to family to loan sharks.⁵⁴ The key differences between those loans made on the installment plan or to a loan shark and the loans at the bank, were collateral and cost. In addition to charging a much higher interest rate, missing a payment on furniture meant losing the furniture. Missing a payment to loan shark meant the possibility of what the New York Times referred to as “gangster methods.”⁵⁵ But the personal loan at the bank required no collateral. The enforcement of its loans never meant losing a valued possession—or a limb. Personal loan departments helped people get disruptions in their income without risking the loss of their possessions or bodily harm.

TABLE 3.1

Personal loans, for those able to get them, protected the wealth of borrowers as well by the relatively low interest rates for the loans and the borrower’s ability to pay off other forms of debt. Personal loans could protect the equity of installment purchases.⁵⁶ Personal loans, used for debt consolidation, enabled middle-class borrowers to save their equity in installment purchases—something lost to working-class borrowers on repossession. Personal loans were also much cheaper than other conventional forms of credit. For example, by law, personal loans in New York could not exceed 12 percent per year on unpaid balances. Rates were less than the legal maximum due to competition. National City Bank charged 3 percent annually for a loan (5.7 percent on unpaid balances). The Manufacturers Trust Company offered 5 percent loans (9.7 percent on unpaid balances) with a co-signer and 4 percent loan (7.7 percent on unpaid balances) for low-risk loans without a co-signer. Though it varied by state, this percentage was always much lower than that for small loan lending companies. In New York, the personal loan rates were one-third those of small loan companies and about half of industrial banks.⁵⁷ Loan sharks’ rates were much higher. Leon Henderson, Russell Sage Foundation economist, estimated loan shark earnings at three times their capital every year in interest or $300,000,000 a year, which, if accurate, is a fantastic rate of return.⁵⁸ In all cases, personal loans from banks, for those borrowers who could obtain them, were the cheapest source of funds.

Despite being cheap for borrowers, these personal loans were also profitable for the banks. While interest rates were low, losses were also extremely low. In their new FHA loan departments, against all their assumptions about sound lending, commercial bankers experienced for the first time how profitable personal loans could be. As banks offered the insured FHA modernization loans, their discomfort in lending to consumers lessened. This discomfort disappeared because these loans, contrary to the bankers’ fears, were in fact quite dependable. Borrowers repaid them reliably. The federal insurance for the Title I loans was rarely used. Bankers also began to notice, through trade journals and their own personal experience, that in spite of their expectations, consumers had rarely defaulted on their installment purchases or small loans throughout the Depression.

Earlier reported numbers on personal lending became believable as bankers’ own experiences in lending reinforced earlier claims of profitability. The New York State Savings Bank Association economist, Irvin Bussing, noted in 1937 that the “experience of commercial and industrial banks with personal loans appears to have been highly satisfactory.”⁵⁹ Repayments of personal loans, which had always seemed so unsound to the banker’s commonsense, were virtually 100 percent. By the late 1930s, the National City Bank reported losses of only one-tenth of 1 percent.⁶⁰ Painter, the assistant manager in the bank’s personal loan department, in remembering the period many years later recounted with some pride that, “some have said, and I would be the last to deny it, that the bank’s dividend record was maintained during the low interest rate and [the] small commercial loan volume days of the depression years by the profitable use of some of the bank’s funds by the Personal Loan Dept.”⁶¹ For the Manufacturers Trust Company, also a savings bank, losses on loans made in the previous twelve months were only one-fifth of 1 percent. Less than 1 percent of their accounts were more than thirty days overdue. National City Bank, in 1933, reported losses of only 5/1000 of 1 percent. This meager loss, mind you, was in the midst of the Great Depression. Lending to salaried employees was very, very safe.

The existing infrastructure for the FHA programs made the transition into personal loans easier for commercial banks, bootstrapping the new lending field. Since consumer loan departments were set up for the FHA program, adding an additional line in personal loans was relatively simple. Personal loans were simply Title I loans for everything else and without the government guarantee. If the National City Bank was atypical in opening a personal loan department in 1928, it was more typical by 1936, in that its FHA modernization loans were handled by the same department.⁶² For most banks, however, the FHA modernization loans preceded the personal loans.⁶³ The Manufacturers Trust Company, also of New York, was more common in the order of its operations. As it considered opening a personal loan department in 1935, it already had a small department to service the “Modernization Credit Plan” under Title I of the National Housing Act.

Like most banks before Title I, Manufacturers Trust Company had not previously had a department to lend to consumers. But with the organization of a department for Title I, a personal loan program became easy since the staff and the office space were already allocated. Employees were trained in small loans and customers knew to come to the bank to borrow these small loans. Bankers saw personal loans as the logical extension of the FHA modernization program, often reporting to the public information about their modernization loans alongside other, non-FHA types of loans to the consumer.⁶⁴ By bringing Title I and personal loans together, it became “feasible to consolidate the work and coordinate new business, credit, and collection effort[s] on monthly payment loans.”⁶⁵ Indeed, acting in concert with the promotion of federal housing policies, which had, as Manufacturers Trust bank executive John Paddi put it, “[made] the public more loan-conscious,” seemed patriotic as well.⁶⁶

Bankers’ culturally embedded ideas of risk and proper practice were not insurmountable. As a testament to the flexibility of bankers’ minds in search of profit, what they experienced was more important than what they had read or had been taught. The practice of lending directly to consumers under Title I, and not just to business, gave banks the confidence to expand into the personal loan business, which like Title I loans also had amortized, monthly payments.⁶⁷ Again and again, bankers’ positive experience with Title I loans led them to set up personal loan departments. Desperate for outlets for their surplus capital and flush with a newfound exuberance for consumer banking, increasing numbers banks began to open “personal loan” departments.

The timing of new personal loan departments in commercial banks in the 1920s and 1930s shows the centrality of the Title I lending experience. First emerging in the late 1920s with National City Bank, the number of new departments had slowed in the early 1930s as many, but not all, of the new experimental departments showed losses.⁶⁸ In the early 1930s, approximately only thirty departments were being organized per year. Then, in 1934, at the same time as FHA Title I loans began, there was a sudden surge to 84 departments per year. In 1935, 182 were organized, followed by 214 in 1936.⁶⁹ By 1936 there were three and a half times as many departments as in 1929.⁷⁰ Loan balances rocketed from $33 million in 1933 to $129 million by 1936. Before Title I, less than 1 percent of commercial banks had a personal loan department. By the end of 1934, 71 percent of the “total banking resources” did.⁷¹ Through “the example and the introduction of FHA modernization financing,” one banking journal noted, banks “established such departments through which almost every type of personal or installment financing [could then] be arranged.”⁷² Though, initially, banks like the Des Moines National Trust Company thought Title I would only be a “minor side line.” For them and other banks it quickly became an important “revenue-producing business,” a banking journal observed.”⁷³ Personal lending helped many banks survive the depression.

Fordism at the Bank

So many banks had opened personal loan departments by 1936 that an American Bankers Association (ABA) bulletin of 1936 bemoaned that personal loans could not be, as apparently some bankers had begun to think, “a panacea for low earnings or provide a plan for investing all, or even a portion of the banks’ excess reserves.”⁷⁴ Yet even as ABA publications advised caution, evidence continued to mount that, contrary to traditional beliefs, profits could be had in personal lending. Two years later at the ABA conference, a Louisville banker named Elbert S. Woosley declared that “the average small borrower is the best credit risk in this nation.” At his bank, the First National Bank of Louisville, the personal loan department caused him “less worry” than their “other earning assets.” Woosley’s worries centered not on the future of personal loans, but on what he called “this time of uncertainty.”⁷⁵ Business investments, not personal loans, by the late 1930s had him nervous. By the time the second recession of the decade hit in 1937, even banks that had been waiting for business to return to normal were forced to take notice of the new opportunities in personal lending. Recovery in industrial production of the previous few years faded as production in late 1937 dropped almost as low as the nadir of the Depression in 1932.⁷⁶ National City Bank chairman Perkins anxiously wrote to a fellow banker that “commercial loans were practically non-existent.”⁷⁷ The lack of commercial investments forced commercial banks to look elsewhere for profits.

Most commercial banks entering the personal loan field through Title I loans, unlike the initial pioneers, did not start their departments strictly out of a concern for consumer thriftiness but to make profits in an era of uncertain business investment. As discussed earlier, the Depression had precipitated a sharp drop-off in commercial borrowing. If personal loans could be collected and the riskiness of borrowers correctly—and cheaply—reckoned, then personal loans represented a perfect outlet for surplus funds. This combination of experience with Title I lending and the need for profits is what led to the massive increase in the number of personal loan departments organized in the mid-1930s. As homage to their origin, the personal loans echoed the structure of the Title I loans—short-term, amortized, and without down payment. Like the FHA loans, the new personal loans were all structured like installment credit. The advertising promise of Bank of America in 1936, when it like so many other commercial banks launched its new personal loan department to make “bank credit available to all qualified installment buyers,” showed how far personal loans had come from the accommodation loans and moral judgment of an earlier era. Banks decreasingly sought to differentiate personal loans from installment credit.⁷⁸

As the personal loan department became a standard part of the banking business, the early moral vision of personal lending, like that held by James Perkins, lost its influence. In 1938 the ABA conducted a survey of its membership to find out just how the personal loan department practiced their trade.⁷⁹ How could traditionalists like A. Cornelius Clark have been so wrong? The survey found that personal loans were both practical and profitable. Following the publication of this survey by America’s foremost banking association, no one could argue, on the grounds of risk, that personal loans were bad business.⁸⁰ As banks entered the field with more of an eye to profit than to encouraging thrift, the number of banks offering personal loans grew as did the ways in which bankers lent.

To make profits commercial banks had to reinvent how they did business, making their offices more like Ford’s assembly line than an artisan’s shop. The key to profits on small loans was lowering the cost of processing each loan. The average loan of the majority of banks was between $150 and $250.⁸¹ Whereas profits could be—and it was essential that they were—made on commercial loans through a careful investigation of each borrower, profits from small loans required investigations to be accurate—but more importantly—quick. The margin of profit could easily be lost through overly in-depth investigation.

The only way to drop the investigation costs was, like a factory, to expand the volume and take advantage of economies of scale. Rather than a few airtight loans, as commercial bankers were used to, personal loans required many loans be certain only on average. High loan volume, which necessitated rapid growth, was the only way in which a personal loan department could be profitable. The rapid expansion of personal loan departments was due to both their success and the way in which they became successful. Their success centered on volume lending. Either a bank’s personal loan department grew very quickly or it did not make money. There was no in-between.

And volume there was. By the mid-1930s, for the 254,000 yearly borrowers from National City Bank, there were only 580 employees. Each day the bank processed 1,200 loan applications, or about two for every employee.⁸² Since the dollar amounts were relatively small and defaults extremely infrequent, banks erred on the side of volume rather than certainty, hoping (correctly) that the profit on the volume would make up for the defaults. The cost for certainty outweighed the cost of default. The techniques, then, used in personal loans were very different from the detailed, plodding way business loans were determined. A federal consumer expenditure survey conducted from 1935 to 1936 showed that about a tenth of the population of New York, Atlanta, and Chicago, of the income ranges and occupations to whom banks lent, had used some form of personal loan in the past year.⁸³ Moreover the very profitability, dependent on volume of lending, of personal loan departments showed that many people were beginning to use this service, not only at the National City Bank, but across the country.

Not all people, however, could use the personal loan department of a commercial bank and the high rates of loan approval reflected, as much as the investigation process, the class filter of feeling comfortable walking into a commercial bank. The system created to speedily evaluate applicants reflected both the problems and possibilities inherent to a steady, monthly wage income.⁸⁴ Borrowers needed loans because of their risky position in the wage labor system, but the perceived steadiness of wage labor enabled them to borrow from expected future income—the salary.

Salaries, not assets or collateral, underpinned the personal loan system. National City Bank, when it opened its department, only lent to salaried employees. Business loans, unlike personal loans, were determined not on the expected ability to repay but on the value of liquidation of the firm’s assets. Firms borrowed against their current value. Bankers asked, “if they default, can we get our money back when the firm’s assets are sold off?” Anticipated future income was considered part, but certainly not the most important part, of a firm’s assets in determining their eligibility for a loan.

In contrast, for personal loans salary was everything and assets nothing. In examining a personal loan application, the question was not a person’s net worth but their “week to week” or “month to month” income.⁸⁵ Personal loans were not based on collateral but “character.” Though the moral language of the 1920s character loan continued, by the mid-1930s one’s character was, apparently, entirely determined by monthly income. The bank did not ask, “Is the applicant good for $300” but instead, “Can he repay $25 a month?”⁸⁶ The most important determinants for a loan were stability of employment and address. The greatest potential cost of a loan was the cost of collection, and that could be reduced if the borrower was easily located at either home or work. But more importantly, if he had worked at one job for a long time he probably would continue to work there in the future. For a bank in Albany that shortened its application form to less than one page, the only three questions that mattered were, “How long has the applicant lived in Albany”; “How long has he been employed by his present employer?”; and, “How much is his pay per week or month?” The extensive investigation imagined by A. Cornelius Clark never happened and was, more importantly, not necessary. In the view of that bank’s manager, if the applicant had lived in Albany and had held the same job for long time, then the “chances [were] strong that he [would be] entitled to the loan.”⁸⁷

Restricting the clientele to the salaried, middle class allowed for sound loans, bankers believed, at such a large volume. The large volume, in turn, allowed for simplification and standardization of application information, which enabled new divisions of labor at the bank. To rapidly accomplish loan approval or denial, the investigation and paperwork, which in the case of business loans had been done from beginning to end by one clerk, was split up on standardized forms and distributed to many different employees. The personal loan department was the first twenty-four hour banking system. At the Manufacturers Trust Company a loan received in the afternoon would be filed and processed by clerical staff in the evening so that it might be investigated, by phone, the following morning. One clerk would check all the names under investigation that day for each reference, instead of many clerks re-contacting the same reference throughout the day.⁸⁸ One clerk confirmed employment. Another clerk confirmed addresses. For larger loans, another clerk confirmed litigation reports. In 95 percent of cases a decision on the loan would have been made by the following afternoon and a check sent off by that evening. Because such loans were often in response to emergencies, the banks gave as prompt service as possible or they risked losing the loan to another bank. Speed and division of labor made lending possible and competitive.

Beyond the simple class filter of salary, the personal loan departments also relied on the new consumer credit bureaus to decide who made a good risk. New organizations, credit bureaus were devoted to the integration of city-wide credit backgrounds on consumers. Though mercantile credit bureaus had existed since the nineteenth century, these new bureaus focused only on consumers.⁸⁹ Professional organizations like National Association of Credit Men, as well as local entrepreneurs, created information exchange systems to enable the tracking of debtors’ information.⁹⁰ Two-thirds of banks claimed they gained enough information about the applicant at the first interview to decide on the case.⁹¹ Eighty percent of banks reported that they made use of either “local merchants or credit associations” in developing credit information. These two figures can only be reconciled if the new credit bureaus of the 1930s provided all the information two-thirds of banks needed. When the Manufacturers Trust Company was considering opening their personal loan department, they felt safe doing so, in part, because of the services of New York’s “central bureau” operated by the New York Credit Men’s Association.⁹²

Applicant interviewers, at the Manufacturers Trust Company and other banks that relied on credit bureaus, got all the information they needed at the first interview because they were given the name, address, and job information they needed to obtain the credit history of the borrower from a credit bureau. The night staff of the personal loan department “prepare[d] the cards for the interchange bureau” every evening, so that they and other lenders would be able to have information on borrowers employment, address, and most importantly, other loans.⁹³ These cards arrived by 8:30 a.m. the next day.⁹⁴ A few hours later the bureau contacted the “Interchange clerk” at the bank to report on all inquiries, telling him if the applicant had outstanding debt, poor payment records, or anything else that would, literally, “red card” the account.⁹⁵ Multiple applications from the same address, applications from women under maiden names, and similar acts of “fraud” to either hide a “poor credit record” or obtain “additional funds” could be found out only through the comprehensive records of the bureau.⁹⁶ The Manufacturers Trust Company reported that it had “detected and declined a total of $60,000 in Personal Loan applications filed with intent to defraud” by the methodical use of the interchange bureau.⁹⁷ Sixty thousand dollars was a small fraction of the amount loaned by Manufacturers Trust, but its loss would have made a sizable dent in its profits.

By 1937, seventeen industrial and commercial banks with personal loan departments in New York relied on the “local interchange bureau.”⁹⁸ Unlike the experiences of National City Bank in late 1920s and early 1930s, no additional information needed to be investigated by the staff. The “habit of the borrower” could be more easily found through the local credit bureau.⁹⁹ According to the 1938 ABA survey, only 13 percent of banks reported not using these sources of information. Without this new system of consumer credit exchange, the volume of processing that made personal loans profitable would not have been possible. Between restricting lending to salaried employees and the ample use of credit bureaus, seemingly loose lending was made safe.

Banks were generous in their lending, reassured by their quick investigation methods both in-house and through the credit bureau, as well as by the class status of their clientele, allowing for high volume lending. Eighty-one percent of banks claimed to approve a seemingly outrageous 70 to 100 percent of loans. Only 4 percent of banks approved fewer than half of the applications. The borrowers, in turn, repaid such confidence. Ninety-eight percent of banks claimed that repayments on individual loans had been satisfactory, and 93 percent reported that even the already low delinquency rate was dropping. Such astounding figures did not go unnoticed by the ABA survey authors, who remarked that these “exceptionally high approval percentage[s] when considered in connection with the almost infinitesimal losses experienced by these banks on personal loans, seems to indicate the inherent soundness of personal loans.”¹⁰⁰

Low losses did not always guarantee high profits to banks. Though virtually all loans extended were repaid, the actual profits yielded on these loans were apparently highly variable. Compared to other questions on the survey, relatively few banks (62 of 258) reported their net rates of profit. Forty-nine banks reported that their profits were not “segregated” by department, 29 did not have the figures “available,” and 18 banks had “new” departments. The newness of the personal loan business led 96 banks in total not to know how much money they were making with their operations. Still the median reported profit rate was between 5 and 6 percent.¹⁰¹ Despite such uncertain numbers, the Wall Street Journal felt comfortable reporting, without qualification, that profits were between 4 and 7 percent, reporting that banks charged, on average, between 5 and 8 percent interest on the loans.¹⁰² The salient fact was that only 2 banks of the 180 answering the question made no money on the personal loan departments, even as business loans everywhere grew more uncertain in the midst of the Great Depression.

Credit Access and Institutional Change

Even as the number of banks offering personal loans grew, so too did their profits. By 1938, commercial banks with personal loan departments were earning higher profits than those without.¹⁰³ National City’s net profit increased from $9,584,953 in 1937 to $10,547,750 in 1938, despite the bleak environment for commercial lending.¹⁰⁴ Noticing the continued low personal loan default rate and comparing it with business loan defaults, how could bankers come to any other conclusion? A Wall Street Journal writer found that “the banks are beginning to consider personal loans as a definite and integral part of their business, rather than as a ‘necessary evil.’”¹⁰⁵ By the late 1930s, personal loan departments of commercial banks rapidly pushed other small loan lenders to the margins. By 1936, the loan balances of personal loan departments exceeded those of credit unions, equaled those of industrial banks, and nearly matched those of small loan companies.¹⁰⁶ Small loan companies continued to cater to the working class, while commercial banks lent to the middle class.¹⁰⁷

As the attention of mainstream banks turned to consumer lending, their lending volumes quickly dwarfed other personal finance institutions because better-paid, middle-class employees could borrow more money. Already by 1939, only a few years after most banks seriously entered the field, economist M. R. Neifield, one of the foremost contemporary authorities on the personal loan business, estimated that the amount of money loaned by personal loan departments was twice that of either pawn brokers or cooperative credit unions, 50 percent greater than other industrial bank companies, and nearly equal to personal finance companies.¹⁰⁸ The organizational ability, access to capital, and resources of commercial banks could not be matched by small loan lenders. Small loan lenders were left with only the riskiest of customers, who increased their costs.

Profits were at the center of the expansion and as the drive for profits grew more important, the moral justification for the personal loans continued to fade in importance. As more banks opened new departments, their practices took the forms shaped by principles of profit and practicality, not the moral notions of thriftiness from earlier times. Though most departments were relatively young, repeat business, after a short time, formed a large fraction of their business. The early paternalist slogan of one bank, “Out of Debt, Money in your Pocket,” gave way to the needs of profit and the preferences of borrowers.¹⁰⁹ Despite the genuine effort of early personal loan departments to get borrowers out of debt, these departments saw a tremendous increase in repeat business in the late 1930s. Twenty-eight percent of banks reported repeat lending of between 11 and 30 percent of their business Twenty-two percent of banks reported 31 to 50 percent, and even 15 percent reported 51 to 80 percent repeat business. These loans were issued from programs that were less than four years old. The feisty scheming of small loan operators to encourage repeat borrowers seems to have been unnecessary for personal loan departments. Though early promoters of personal loan departments hoped the loans would be a stepping-stone to saving and financial independence, for some borrowers they were only a cheaper form of debt persistence.

The use of savings accounts to encourage thrift also fell to the wayside. By 1938, only slightly more than half of installment payments were repaid into savings accounts. For those banks that continued to use savings accounts in this way, encouraging thrift was no longer the main purpose. Half of them did so, the ABA survey reported, because of the “simplicity, efficiency, [and] economy” of using previously established systems for deposit. If banks already had bookkeepers, machines, and ways of dealing with deposits, why create an entirely new system? One-fifth of banks had savings deposits because of state law.¹¹⁰ Six percent did so because other banks did. Only 4 percent claimed to use savings deposits to encourage thrift. Most revealing, perhaps, that “savings” accounts were used for the ease of management and not for thrift, is that less than a third of banks using savings accounts, or 13 percent of all banks, paid interest on the deposits.¹¹¹ In contrast to only a few years earlier, when banks anxiously wrote to National City Bank for blank forms and anecdotal training, only one bank by 1938 reported using savings accounts because the National City Bank did it.¹¹² Indeed, by 1938, not even National City Bank used savings accounts anymore. In October 1936, National City converted its personal loans to the system based on the Title I program.¹¹³

New personal loan departments were modeled on the Title I Loan program, not the moralistic program of National City Bank. Experiments in lending were widespread, but banks quickly learned what worked and what did not. Long lists of new and discontinued practices, rarely with frequencies higher than one bank, show the variation in practices and uncertainty with which banks stepped into this new world of personal loans. From innovations that would eventually become standard, like machine bookkeeping, to practices that would disappear, like interest on deposits, banks tried all kinds of ways to lend personal loans.¹¹⁴ Within a few years, however, as information, like that from the ABA survey—about what worked and what did not work—personal loan department practices converged.

Even as methods of lending to consumers converged, the kinds of loans that were offered rapidly diverged. Commercial banks expanded outside of small loans into other branches of consumer credit. As the finance companies of the 1920s feared, commercial banks, especially as they witnessed the reliability of consumer lending in the mid-1930s, expanded into installment financing of both consumer durables and automobiles. As Bank of America president and founder Giannini commented in 1936, the “trend is toward inclusion of the individual in bank financing, through personal loans, modernization loans, and automobile finance. . . . This is the trend that will be most apparent in banking during the ensuing years.”¹¹⁵ Like most other banks, Bank of America had started its installment loan department under the FHA insurance program. In 1935, it loaned $18 million to borrowers under this program. Giannini vowed to expand the bank’s consumer lending even if “the government cease[d] to insure modernization and equipment loans.”¹¹⁶

In 1936, Bank of America (BOA) expanded the installment program to include other forms of consumer credit. The Bank of America “Time Plan” financing system allowed consumers to borrow for autos, furniture, consumer durables, or personal loans at low cost.¹¹⁷ Advertisements reminded potential borrowers that each loan established better credit with the bank, ensuing easy future borrowing.¹¹⁸ Without the fees associated with regular finance companies or dealers, bank auto financing loans could be much cheaper than those from finance companies.¹¹⁹ BOA guaranteed that the cost of their loans would be the lowest in California.¹²⁰ Finance companies had to borrow their money from banks and then lend it. BOA and other banks could lend the money directly. With 432 branches across California, BOA could offer more convenient service than any local finance company. The costs for banks to lend installment credit, once the personal loan department was organized, was much lower than any finance company’s costs.

For BOA, the Time Plan reaped tremendous profits. In 1936, the year in which it was instituted, BOA increased earnings nearly 40 percent over 1935 to $22.5 million.¹²¹ The increased profits came, according to Giannini, from the expansion on loans of $81 million primarily in consumer credit.¹²² By May 1937, Giannini told the Los Angeles Times that “the handling of these installment loans has trebled and quadrupled activity in our branches.”¹²³ Giannini stated that BOA had lent, in the prior eighteen months, $140 million in loans, expanded to 479 branches, and had added 5,400 employees.¹²⁴ Consumer lending had attained maturity as a form of lending and independence from the incubating FHA Title I program.

Conclusion: Commercial Banks Discover the Consumer

Even though Congress briefly suspended the Title I loan program in April 1937, the expansion of commercial banks into consumer credit continued. Title I was later reinstituted, but consumer lending continued to expand without federal assistance. Unlike mortgage lending, consumer lending quickly became autonomous from the state, leading to our current amnesia about its origins. Writing in a bankers’ magazine, Donaldson Thorburn, assistant vice-president of Bank of America, wrote that the weak environment for business loans made “retail lending the logical road to improved earnings.”¹²⁵ What was incredulous a decade earlier had now become logical. As the 1930s closed, many other commercial banks began to follow BOA’s aggressive lead and increase their consumer financing. The soundness and profitability of consumer lending had been proven by experience. Federal loan guarantees were no longer needed. Commercial banks had discovered the profits of consumer credit, and that discovery would, in the years to come, remake both the foundations of American capitalism and society.

Commercial banking’s shift into personal lending signaled more than a new source of profit. For capital it also marked the long-run legitimacy of consumer credit. As an editorial in the New York Credit Men’s Association journal noted, “whatever doubts may have existed as to the permanency of consumer credit during the last half of the Depression were definitely laid at rest with the entrance of America’s largest commercial banks into the personal loan field.”¹²⁶ Yet, the desireability of an economy reliant on consumer credit remained. The “two-headed monster” of credit boosted sales, but as the editorial reminded the reader, the possibility of massive default always loomed.

Most importantly, the experiences of the 1930s led bankers to think of consumers as profitable sites of investment. If commercial bankers began lending to consumers for worthy purposes, once they recognized the potential profits of such lending, their definition of a “worthy purpose” expanded. Experience with Title I and personal loan lending rapidly extended into other areas of direct and indirect consumer lending for automobiles and retail credit. The great lesson of the Depression for banks was that there were alternatives to investing in business—investing in personal debt could be profitable as well.

This discovery was the sea change that the president of BOA referred to in his 1936 letter to all of his managers announced that “the character of banking service is changing.”¹²⁷ On the tenth anniversary of National City Bank’s personal loan department, by then called the personal credit department for its more extensive operations, an editorial in the National City Bank employee magazine stated that the creation of the department was “viewed with raised eyebrows in an era that had never devoted much serious thought to the plight of the prospective small borrower. Today, acceptance of the idea by banks everywhere in America is the best answer to the practicability of the character loan and to National City’s leadership.”¹²⁸ The experiences of FHA lending, under the guidance of National City Bank’s Roger Steffan, led banks to think of consumers as a profitable alternative to investing in production. Even if Steffan “gauge[d] correctly,” as he believed he had, that “the original sponsors of the National Housing Act, of those administering it, and of those bankers active in the extension of personal credit on the mass plan” had no initial intention of “tak[ing] over the great bulk of time-financing that exists in this country,” such intentions mattered little when compared with profitable opportunity.¹²⁹ Installment loans, deemed risky and unsound in the 1920s, were by the end of the 1930s considered a foundation of modern lending. The experience of profitably lending money with monthly repayments—with or without collateral and with or without co-signer—signaled an upheaval in how banks saw consumers that would structurally alter the postwar world, as slowly, contingently, those monthly loans became ever more divorced from the things on which they were lent.

For the middle-class borrower, the short-term personal loan and the long-run mortgage, both legacies of the New Deal’s FHA program, solidified the changes in borrowing that had begun with installment loans in the 1920s. Personal debt was everywhere in America and institutional lenders, not family or social networks, provided the funds. And these funds were now provided by the largest financial institutions in the country—commercial banks. Even if you knew a commercial banker socially, a vast impersonal staff would review your application and check with the credit bureau before you received a loan. And with the purchase of your FHA house in the suburbs, your automobile loan at the bank, and your consolidation of installment payments in a personal loan, indebtedness began to spread throughout your economic life. As the BOA radio advertisements reminded its Time Plan borrowers, the bank did not extend home loans, it financed a “home life.”¹³⁰ For those left out of this salaried, middle-class world of debt—poor and working-class whites, most African Americans, and all unmarried women—life continued with its risks and uncertainties; their credit sources continued to be more expensive, dangerous, and unreliable.¹³¹ Yet for those with access, debt presented new opportunities for home ownership and a lifestyle of greater choice. The salaried, middle class could begin to count on low-cost credit to finance their “home life.” What would become of this life remained to be seen after the troubles of the Great Depression ended and World War II began, where the perceived dangers of too much credit, and the subsequent attempts to regulate it, transformed consumer credit in an entirely new direction.