Lending Needed a Law Written First

Banks were not permitted to make the loans this company lived on. The law changed, the advantage went with it, and the last offices closed in 2009.

Nobody keeps a payment book in a kitchen drawer anymore.

It was smaller than a checkbook and the pages were perforated. Each one carried a month, an account number, and an amount that never moved.

On the first, somebody at your house tore one out, wrote a check for the same figure as the month before, and sealed both into the envelope that came with it.

The stub stayed behind in the booklet. You could count what was left by fanning the pages with a thumb.

The money had come from an office in the plaza, past the shoe repair, with venetian blinds in the window and four desks behind a low rail.

A man there asked what it was for and wrote the answer on a card. He said yes on a Thursday, and the washing machine came Saturday.

The sign over the door said Household Finance.

Frank Mackey started the business in Minneapolis in 1878, lending $10 to $200 at a time against furniture and wages.

A bank could not follow him into it. Usury statutes held lenders to roughly 6 percent a year, and 6 percent a year on a fifty dollar loan running three months came to about seventy five cents. That did not cover the interview, the ledger card, the postage, and the man who came around when a payment was late.

So the working household had no lawful lender at all. It had a relative, a pawnbroker, or somebody charging 20 percent a month and writing nothing down.

Then the trade got the law rewritten. A model small loan statute published in 1916, drafted with the lenders in the room, licensed a new kind of company and allowed it to charge up to 3.5 percent a month on loans of $300 or less. Two thirds of the states adopted a version of it.

That license was the actual product. The company was not selling money, because money was everywhere. It was selling the only legal price at which a small sum of it could be handed to an ordinary family.

The real competitor was never the bank. It was the lender operating without a license, and the business spent sixty years demonstrating that it was the other kind.

In 1928 the company cut its rate to 2.5 percent a month, below the ceiling the law allowed, the first in the trade to charge less than it was entitled to. In 1931 it started mailing out household budget booklets. On television it sang that you should never borrow money needlessly, which is an odd message for a lender and exactly the point.

Respectability scaled better than capital did. There were 573 offices by 1951, and at the top the company and the names it absorbed ran about 1,400 offices across 46 states and served more than 50 million customers in three countries.

The credit card did it, and not by pricing.

A revolving account needed no interview, no ledger card, and no office in the plaza. The bank mailed it, the customer set the amount himself, and the paperwork happened once instead of every time.

The legal wall came down next. In 1978 the Supreme Court held that a national bank could charge its own state's rate to a borrower living anywhere in the country. States that lifted their ceilings collected the card operations, and a rate that had once required a special license became a rate almost any bank could charge almost anyone.

The license had been the whole asset. It was now a filing.

Lending to the people the card issuers priced highest still paid, and the security moved from the furniture to the house it sat in.

The company bought Beneficial, its oldest rival, in 1998, and both signs went on over the same business. In 2002 it settled with attorneys general in 46 states for about $486 million.

A London bank bought the whole company in March 2003 for about $15.3 billion. Six years later that owner stopped writing new loans, and roughly 800 branch offices went dark in 2009.

The lender did not disappear. It moved back to the counter, where the loan sits beside the price instead of a mile away in a plaza.

The plan that splits a purchase into four payments, the store card at the register, the offer inside an app. Each is a company that is not a bank, lending under a state license, at a rate some legislature wrote down.

Anyone can lend money.

Not everyone has been allowed to price it.