Credit Cars: Or How I Learned to Stop Worrying and Love Auto Loans

Abstract

Drawing on trade publications, contemporaneous newspaper stories, and other historical sources from the early twentieth-century United States, this article explains how installment plans overcame moral and business concerns to become the standard way people bought cars. Prominent figures in the automobile industry and financial institutions initially denounced the idea of selling cars on credit, and many banks declined to extend credit to would-be auto buyers. However, the relevant legal infrastructure heavily favored creditors, allowing them to circumvent usury laws and guaranteeing their right to repossess assets if borrowers missed payments. When the profit-making that these aspects of the law enabled became clear, moral objections to the idea of selling cars on credit yielded to a new moral consensus among powerful actors that valorized buying cars on credit and concentrated disapprobation on just those borrowers who defaulted on their payments. Thus, the characteristics of the legal infrastructure functionally presupposed the resolution of the erstwhile debate about the fundamental morality of selling cars on credit. Ultimately, lending practices building on the legal and moral foundation established in the early twentieth century led to the establishment of subprime auto lenders whose business model revolves around exorbitant interest rates, high fees, and aggressive repossession.