Goldman Sachs, Apple and the US Consumer Finance Watchdog have been fined more than $89mn for “illegally sidestepping” their obligations towards customers of their joint credit card business.
The fines announced Wednesday highlight the difficulties Apple has had when it comes to expanding their financial products to everyday consumers. Goldman’s business was a major departure from their traditional investment banking and trading business.
Rohit Chopra, director of the Consumer Financial Protection Bureau (CFPB), said that Goldman Sachs is prohibited from offering a consumer credit card until it can prove it can follow the law. Apple and Goldman Sachs illegally evaded their legal obligations to Apple Card borrowers.
This is also a rebuke to Apple, five years after the company made a major push into financial services by launching its own credit cards. It did this in order to build on its digital wallets and payment offerings. It is unlikely that the company will abandon its ambitions to enter banking and payments.
The CFPB alleged Apple had failed to forward thousands of transactions that cardholders had disputed to Goldman, and that Goldman did not follow federal requirements when investigating disputes forwarded. The agency said that both companies had misled their customers regarding interest-free payment plans on Apple products.
Goldman Sachs has been ordered by the court to pay at least $ 19.8mn as reparation and a civil money penalty of $ 45mn. Apple will pay civil penalties of $25mn. Goldman Sachs said in a press release that it “worked tirelessly to address certain technical and operational challenges we encountered after launch, and have already dealt with them with impacted clients”.
Goldman stated, “We are happy to have reached a settlement with the CFPB. We are also proud to have created such an innovative product and won awards alongside Apple.”
Apple released a statement saying: “When Apple learned about these inadvertent problems years ago, it worked closely with Goldman Sachs in order to quickly resolve them and assist impacted customers. We strongly disagree with CFPB’s description of Apple’s behavior, but we’ve reached an agreement with them. We are looking forward to delivering a great Apple Card experience to our customers.” In court documents, the companies did not confirm or deny any of the findings made by regulators.
Goldman is currently attempting to exit its credit card partnership Apple, as it scales back on its retail banking push after years of heavy losses. Barclays will now take over Goldman’s partnership with General Motors. JPMorgan held preliminary talks about taking over the iPhone maker’s credit card programs.
Goldman has credit card loans worth about $20bn, which is a fraction of the $1.5tn total assets.
The CFPB claimed that there were problems in the early days of the partnership between the two most iconic companies in the United States. Goldman’s Board of Directors was informed just days before the Apple Card launch in 2019 that certain Apple Card dispute system were “not ready” because of technological issues.
They launched the product. Apple could impose a penalty of $25mn on Goldman if it delayed the launch by 90 days.
As more and more people link their bank accounts with digital wallets, the CFPB is pushing for it to expand its oversight over big tech’s expansion in financial services.
Apple has also made changes to its Financial Services business in the last few months. In June, it ended its “buy now and pay later” service which it had launched in the US by 2023. Apple announced in August that it would open up its tap to pay technology to competitors after being under regulatory pressure from the EU.
Apple’s entry into the financial services market caused a stir in traditional banks. Apple does not separate its financial services revenue, but the overall services revenue, which includes App Store, Apple Music, and iCloud, has been significant, showing persistent growth in double digits and compensating for a drop in iPhone sales earlier this summer.
Jamie Dimon, the chief executive of JPMorgan, has called out Apple and other tech companies as new competitors in providing financial services to their customers. He said, at an investor conference earlier this year, that Apple “moves money, holds money and lends money”. “They’re turning into a bank.”
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