Top American investment banks Goldman Sachs and Apple Inc. are facing huge fines for their consumer finance collaboration project, the Apple Card.
On October 24th, the Consumer Financial Protection Bureau (CFPB) in the United States announced penalties for Goldman Sachs and Apple for customer service failures and false statements during their cooperation, resulting in a total fine of nearly $89.8 million.
Both parties will pay a total fine of 89.8 million US dollars
Specifically, in the official announcement, CFPB stated that the misconduct of Apple and Goldman Sachs has affected hundreds of thousands of users who hold Apple cards. In the investigation, CFPB found that Apple failed to send tens of thousands of Apple card transactions to Goldman Sachs in a consumer dispute, and when Apple did send the dispute to Goldman Sachs, the bank did not follow the federal government's requirements to investigate the dispute. Despite warnings from third parties that the Apple Card dispute system was not ready due to technical issues, Apple and Goldman Sachs still launched the Apple Card. The existence of these issues means that consumers have to wait for a long time to recover disputed fees, and in addition, some consumers have had incorrect negative information added to their credit reports.
Therefore, the CFPB stated that it will order Goldman Sachs to pay at least $19.8 million in remediation and $45 million in civil fines, and Apple will also pay $25 million in civil fines. In addition, Goldman Sachs is also prohibited from launching new credit cards unless it can provide a credible plan to demonstrate that the product will truly comply with the law.
CFPB also found that Apple and Goldman Sachs misled consumers about their interest free payment plans for Apple devices. Many customers believe that when they purchase Apple devices using an Apple card, they will automatically receive interest free monthly payments. They were charged interest. In some cases, Apple may not even display interest free payment options on its website on certain browsers. In addition, Goldman Sachs misled consumers on some refund applications, resulting in consumers paying additional interest fees.
Apple and Goldman Sachs illegally evaded their legal obligations to Apple card borrowers, "said Rohit Chopra, director of the CFPB." The CFPB prohibits Goldman Sachs from offering new consumer credit cards unless it can prove that it can actually comply with the law
Apple Card collaboration project has vulnerabilities
Goldman Sachs is one of the largest financial institutions in the United States, mainly operating Goldman Sachs Bank, focusing on investment banking and investment management rather than consumer finance. The Apple Card project was Goldman Sachs' first important experiment in credit card loans, providing an opportunity for Goldman Sachs to establish its position in the market. And Apple's business model relies heavily on the massive revenue and profits from its devices, with many of its products being more expensive than other brands, leading many consumers to pay through installment payments or credit products.
As early as August 2019, Apple collaborated with Goldman Sachs to launch the Apple Card, marking a significant expansion of the two companies into consumer loans. This partnership enabled Apple to provide a financing mechanism to increase sales of its devices, including iPhones and iPads. Apple Card is also attempting to attract more consumers in Apple's retail stores and App Store.
CFPB pointed out that in the Apple Card cooperation, Goldman Sachs provides credit to consumers and handles account services. Apple is responsible for designing a customer-oriented interface for managing Apple Card accounts on Apple devices, which also includes a "Report Issues" feature that allows consumers to raise objections to Apple Card transactions. In addition, Apple is deeply involved in the marketing and advertising of credit card products.
The agreement between Apple and Goldman Sachs, in order to incentivize early Apple card users to join, grants Apple the right to impose a fine of $25 million on Goldman Sachs for every 90 day delay caused. But four days before its launch, the Goldman Sachs board learned that due to technical issues, the critical Apple card dispute system was "not fully ready," but the two companies continued to roll out the feature.
Later in December 2019, Goldman Sachs and Apple launched a new feature called "Apple Card Monthly Installment Payment", which allows users to purchase certain Apple devices with Apple cards directly from Apple through interest free monthly installment payments, similar to the "Buy Now, Pay Later" product. But when Apple's customers encounter improper charges or raise disputes, the system developed by the company fails to solve these problems.
CFPB points out that under US federal law, when consumers raise objections to fraudulent or unauthorized financial institution transactions, they must promptly investigate what went wrong. Goldman Sachs failed to comply with this requirement. In addition, many disputes submitted to Apple were not even sent to Goldman Sachs. In addition, Apple's deceptive marketing materials and illegal behavior have led consumers to actually pay interest when using Apple cards to purchase iPhones and other Apple devices, while consumers mistakenly believe it is interest free payment.
Goldman Sachs faces challenges in its consumer banking business
Regarding the huge fine suffered this time, Nick Carcaterra, a spokesperson for Goldman Sachs, stated that the Apple Card is "one of the most consumer friendly credit cards in history". He said, "We have made efforts to address the technical and operational challenges encountered after the launch, and have properly handled the issues of affected customers
An Apple spokesperson also stated that Apple worked closely with Goldman Sachs to quickly resolve the "unintentional issue" that occurred several years ago and assist affected customers. Although Apple disagrees with CFPB's description of its behavior, it has reached an agreement with the agency.
Interface News reporters noticed that on October 15th, Goldman Sachs released its third quarter 2024 financial report with a net profit of approximately $3 billion. However, in the report, Goldman Sachs emphasized the ongoing challenges in its consumer banking business, which has been troubling it for a long time. Last quarter, Goldman Sachs set aside $397 million in credit losses, a significant increase compared to the previous quarter and the same period last year.
Previously, in October 2023, Goldman Sachs CEO David Solomon stated that the cooperation agreement with Apple regarding the Apple Card had been "extended and revised", and the revised partnership would continue until 2029, with more equal terms. Just over a month later, the relationship between the two sides became tense again. At the end of November that year, there were rumors in the market that Apple and Goldman Sachs would withdraw from the Apple Card partnership in the next year or so.