It has long been a fundamental maxim in business that trust and integrity are integral to the extension of credit between businesses, partners, and clients. It is a central theme of Josh Lauer’s book that, despite the revolutionary effects of technological capability, the central elements of trust and integrity remain in place. Lauer contrasts this continuity of principles with transformative changes in the fin-tech sectors, resulting in financialization of the modern American economy, the construction of individual financial identity, and customized financial products.
Lauer’s book, part of the ‘Columbia Studies in the History of U.S. Capitalism’ series, consists of nine chapters, recounting the historical evolution of systematic credit surveillance amid cumulative changes in the credit sub-sector of financial services. It is highly informative, immaculately researched, and written in crisp, precise prose. The earlier chapters are particularly insightful in explaining the transition from localized face-to-face economies to more impersonal modern financial institutions. The broader historical perspective on surveillance is identified and conceptualized, with historical parallels drawn from factory and prison surveillance, noted by Marx, Taylor, and Foucault (pages 10-11).
In earlier centuries, creditworthiness was assessed locally but as the American economy expanded, surveillance emerged as a surrogacy for personal knowledge and observation. Mercantile agencies, forerunners of credit bureaus, used advanced methodologies of reporting, surveillance, and intelligence-gathering. Creditworthiness was not primarily about wealth per se but honesty and integrity, that is, not whether you could pay but whether you would pay (pages 19-20). Evaluating and quantifying risk was always somewhat subjective, when assessing the alliterative core signifiers, or the ‘three Cs’, of character, capital, and capacity’ (page 20). Technology played a role in offsetting subjectivity, through quantitative data of balance sheets, statements, and alphanumerical coding, signifying recorded financial experience and activity (page 69).
Credit reports increased exponentially in the second half of the nineteenth century, and significantly, at the fin de siècle, two of the three leading contemporary credit bureaus were founded. ‘Credit Men’ within companies, acting as professional custodians and interpreters of creditworthiness, were organized into the National Association of Credit Men (NACM) in 1896 (page 83). While indicative of the (gendered) professionalization of credit management, after 1914, more women entered the sector and the nomenclature of the professional association was revised accordingly.
The post-1945 democratization of credit, underpinned by Mass Production, increasing availability of household goods, and installment deals, expanded the consumer base. It was accompanied by a relentless drive to educate consumers and to induce ‘Credit Consciousness’ (pages 135-136). Credit reporting networks extended across the national business landscape, strategically positioned to serve multiple sectors (page 84). Equally, a national credit infrastructure was closely aligned with the rise of department stores, with credit checks often made at point of purchase (page 87). Codes signified credit status, and authorization or refusal was conveyed within stores by pneumatic tubes. Technology again, in the form of the Dewey card-file system, vertical filing, and telephone usage, allowed for greater functionality and efficiency, not least through facilitating tighter control on credit limits.
Database marketing in the 1970s and 1980s made consumer segmentation possible, especially important given social fragmentation and rapid demographic change. Moreover, the sales potential of credit rating data had been quickly recognized, with customized information in promotional literature and correspondence. Identifying and locating income brackets and market segments became a powerful marketing tool, understood statistically through the Pareto Principle of the ‘vital few and trivial many’ (page 153). Typically, with 20% of customers providing 80% of sales, clearer financial visibility and micro-targeting of high-value and high-volume customers was possible (pages 153-154).
Computerization was transformative, not least by hastening standardization. It was a great leap forward in terms of efficiency, and decision-making was far more rapid than could be achieved by personal interviews and pneumatic tubes. Statistical scoring and ranking did have their limits, and even well into the 1960s, traditional methodologies were not fully obsolete. How character could be quantified and scored was resolved by a multi-variable approach, whereby possession of assets and commodities, such as a mortgage, a home phone, and a savings or checking account, provided a profile of creditworthiness based on personal stability and institutional validation (page 206). Affirmative and negative reporting of lifestyle, employment, income, and health, were bell-weathers of creditworthiness. Adjustable and variable interest rates followed the risk-based pricing model of the insurance sector but as the sub-prime crisis in the Federal home-loan markets of Fannie Mae and Freddie Mac indicated, the temptation for lenders was to relax credit limits. (page 209-210).
Throughout the 1990s and 2000s, credit data played a vital role in the interstices of the State apparatus and criminal justice system. Yet, issues surrounding data-sharing and confidentiality became more contentious, and fittingly, privacy, data collection, and regulation dominate the second half of the book. Historically, the credit sector developed without close legislative scrutiny, but self-regulation was increasingly untenable. A raft of legislation, such as the Fair Credit Reporting Act (FCRA) of 1970, following the 1968 Consumer Credit Protection Act, including Truth in Lending clauses, provided powers of oversight, transparency, and accountability (page 226). There were societal welfare gains from a more efficient credit system but the trade-off was greater surveillance and data mining to inform credit decisions and to act as a marketing tool (page 234).
While credit bureaus sought to act as neutral information-gatherers, credit availability could not escape the broader socio-economic framework of modern America, with race, gender, class, occupational status, and residence all profiling factors (page 143). There were winners and losers. Single women and minorities were often excluded from mainstream credit and exposed to predatory lending. This ‘credit discrimination’ was tackled by Equal Credit Opportunity Acts (ECOA) in the 1970s, prohibiting credit refusal on the basis of gender or race, and promoting ‘blind’ scoring to eliminate discrimination (pages 235-236). Yet, financial identity based on economic stability and institutional status often still reflected entrenched racial and gender disadvantages. Statistical credit scoring can’t eliminate proxy discrimination since it deals with the effects rather than causes of disadvantage and discrimination (pages 237-238).
More positively, greater efficiency was driven by risk modelling and database marketing, with powerful information systems generating predictive data for different types of lenders (page 249). Crucially, electronic data is not containable in the same way as paper, thus privacy concerns are again viably raised. The practice of financial institutions, outside the purview of the FCRA, continuing to share financial information with affiliates and third parties in joint marketing activities, is a particularly egregious example (pages 263-264). The oligopolistic triumvirate of Equifax, TRW, and TransUnion may be able to use their market power to regulate the spread of information, but the credit landscape will not regress to an earlier iteration. From a process of localized character assessment to national FICO scores, creditworthiness remains central to an economy largely built on corporate, household, and individual debt. Identifying potential defaulters and extracting more profitability from ‘good’ borrowers remains central to creditors.
Indeed, that dichotomy portrayed by Lauer between the efficiency and functionality of the credit sector, and an increasingly intrusive surveillance apparatus, is convincingly validated by an impressive body of research. In many ways, the book is another thoughtful testimony to the disruptive effects of modern technology, and how there are positive and negative effects of innovation and expansion. Credit bureau databases were predictably an early target for hackers, but ironically a large volume of data is now provided by consumers themselves on social media, through declared data. Surprisingly, until fairly recently, there appeared to be little opposition to credit surveillance, but now, the mantra ‘All data is credit data’ resonates widely (page 267).
It may have been useful to have drawn an international comparison to test American exceptionalism, by assessing the creation of national markets through mass production, product uniformity, and standardization in less commercial societies. As Adam Smith famously wrote: ‘The division of labour is limited by the extent of the market’. Certainly, the expansion of the credit sector is part of that larger narrative of national markets and institutions eclipsing local economies, institutions, and relationships. In that sense, the development of the sector is indicative of a thriving capitalist economy.
Lauer arrives at a somewhat ominous conclusion as to technology, in stating: ‘No digital presence goes untracked; no digital profile goes unmined. This is by design’ (page 274). While algorithms facilitate high-level micro-targeting, and thus further erode human interaction, AI threatens to go further, most notably through automated screening in multiple contexts. The positive features of financialization and financial identity have clearly come at a cost to individual privacy. Avoiding further quasi-Orwellian intrusion may now depend, somewhat ironically, on robust government regulation and oversight.
‘Creditworthy: A History of Consumer Surveillance and Financial Identity in America’ by Josh Lauer was published in 2024 by Columbia University Press (ISBN: 978-0-23-121663-0). 352pp.)
Gordon Bannerman is a professor teaching Business History at Wilfrid Laurier University and the University of Guelph-Humber, Ontario. His primary research interests focus on modern British political and economic history.