One feature distinguished the consumer loan sector in the United States from that in every other advanced industrialized country: the early entry of commercial, deposit-taking banks into consumer lending. In France, commercial banks made brief and unsuccessful forays into personal lending in the early 1960s and again in the early 1970s, then waited another decade before reentering the sector for good. This left the French consumer loan sector dominated by dedicated consumer finance companies that offered credit to finance the sales of autos and other products. American banks, by contrast, began to experiment with dedicated personal loan departments in the 1920s and 1930s. Banks were not the leaders in the consumer sector. For most of the postwar period, sales credit offered by auto lenders and national retail chains such as Sears and JC Penney accounted for the largest share of outstanding consumer debt. Nonetheless, bank engagement in the consumer loan sector had a profound impact both on the regulation of consumer lending and on consumer perceptions of borrowing. Because banks were seen as legitimate financial institutions, their engagement in consumer lending offered a seal of approval that made policymakers – and probably also households – more accepting of consumer credit. Moreover, because commercial banks were already making loans when new card payment technologies emerged, banks themselves became strong advocates for a new hybrid credit-payment card system that came to distinguish the American consumer credit system from that in other advanced industrialized countries.

Commercial banks faced two major obstacles to making consumer loans. First, banks relied heavily on reputation, and small loans in the early twentieth century were widely perceived as disreputable. Second, the fixed costs of small loans tended to make them unprofitable unless banks invested heavily in new kinds of automated loan-processing technology – technology that was not required for standard commercial loans. American banks quickly overcame these obstacles. Their early move into consumer lending is in large part a story of accident and opportunism.