'Apple Card failures,' including mishandling disputes, trigger millions in penalties
A major meltdown in customer service for Apple Card customers has led to $70 million in civil penalties after a crackdown by regulators. Millions of dollars must be sent to harmed credit card customers, too.
The Consumer Financial Protection Bureau took action against Apple and Goldman Sachs, charging that the companies illegally mishandled "tens of thousands" of disputes credit card customers had about transactions.
In addition, regulators said the credit card partners failed to live up to some promises about interest-free payment plans for iPhones and other devices for customers using the Apple credit card. And regulators said the misleading claims relating to refunds hurt consumers on installment plans, too.
CFPB Director Rohit Chopra said key systems weren't ready for the launch of the Apple Card in 2019. The Apple Card marked a significant expansion into consumer lending for both Apple and Goldman Sachs.
"The execution was a mess," Chopra said in a news media call Wednesday.
Regulators said Apple and Goldman Sachs launched the popular credit card, even in spite of "third-party warnings to Goldman that the Apple Card disputes system was not ready due to technological issues."
Chopra said Apple and Goldman Sachs "illegally sidestepped their legal obligations for Apple Card borrowers."
According to a statement emailed to the Detroit Free Press, a Goldman Sachs spokesperson said the company was pleased to have reached a resolution with the CFPB and has diligently worked to address "certain technological and operational challenges that we experienced after launch and have already handled them with impacted customers."
Goldman Sachs said it is "proud to have developed such an innovative and award-winning product alongside Apple.”
The statement noted: "Apple Card is one of the most consumer-friendly credit cards that has ever been offered."
An Apple spokesperson sent an emailed response, which also stated that the card is "consumer-friendly." The statement said: "Apple is committed to providing consumers with fair and transparent financial products."
"Upon learning about these inadvertent issues years ago, Apple worked closely with Goldman Sachs to quickly address them and help impacted customers. While we strongly disagree with the CFPB’s characterization of Apple’s conduct, we have aligned with them on an agreement. We look forward to continuing to deliver a great experience for our Apple Card customers."
The CFPB ordered Goldman Sachs to pay a $45 million civil penalty, plus pay at least $19.8 million in redress to cardholders who were harmed.
Apple is required to pay a $25 million civil penalty.
Any consumers who were harmed, according to regulators, would not need to take any action to receive the money; many Apple Card customers already have been contacted, as well.
The Consumer Financial Protection Bureau said it is banning Goldman Sachs from launching a new credit card "unless it can provide a credible plan that the product will actually comply with the law."
JPMorgan Chase has been reportedly talking with Apple about taking over the tech-company's credit card program, according to a Wall Street Journal exclusive in September, which indicated that a deal could be months away or maybe even never happen.
In addition, Goldman Sachs is ending its relationship with the GM Rewards Mastercard, transferring that credit card business to Barclays. General Motors and Barclays U.S. Consumer Bank announced a long-term partnership Oct. 14, saying Barclays will be the exclusive issuer of the GM Rewards Mastercard and the GM Business Mastercard in the United States, starting next summer.
"Goldman has been pulling back on other aspects of its ill-fated foray into consumer finance," said Ted Rossman, senior industry analyst for Bankrate.com. He noted that the firm stopped offering personal loans in 2023.
The American Banker puts Goldman as the 11th largest credit card issuer in the United States, mostly thanks to Apple Card, Rossman said.
Several 'meltdowns' took place
Some consumers faced long waits to get money back for disputed charges, regulators said, and some had incorrect negative information added to their credit reports. Goldman Sachs, regulators said, also misled consumers about the application of some refunds, which led to additional interest charges.
Take the interest-free payment plan that was called into question.
"Many customers thought they would automatically get interest-free monthly payments when buying Apple devices with their Apple Card," the CFPB stated.
"Instead, they were charged interest."
Making matters worse, regulators said, Apple did not even show the interest-free payment option on its website when consumers used certain browsers. "For online purchases," the CFPB noted, "Apple only presented the payment plan as an option to consumers using Apple’s own Safari browser."
Consumers essentially thought they were getting a break on interest when they did not in some cases.
How refunds were applied hurt some, too
The CFPB elaborated on the complaints and concerns relating to refund practices for cardholders with monthly installment plans.
These Apple Card customers "essentially had two card balances — the plan balance and their interest-bearing revolving balance," the CFPB stated.
More than 10,000 cardholders, according to the CFPB, were misled by Goldman Sachs about how the bank would apply certain refunds between the two balances.
"Contrary to Goldman’s representations," the CFPB stated, "portions of refunds for unrelated purchases were applied to the interest-free plan balance instead of the interest-bearing revolving balance. As a result, consumers incurred additional and unexpected interest expenses."
Failing to investigate disputes
Then, there was the frustration that consumers faced when they tried to file disputes and the Apple Card failed to follow federal regulations.
Apple, according to the CFPB, "failed to send tens of thousands of consumer disputes of Apple Card transactions to Goldman Sachs, and when Apple did send disputes to Goldman Sachs, the bank did not follow numerous federal requirements for investigating the disputes."
When Apple did send some disputes to Goldman Sachs, the CFPB said, the bank "failed to consistently send acknowledgment notices within 30 days, conduct reasonable investigations, or send resolution letters explaining the determinations of its investigations within 90 days."
As a result, the consumer watchdog agency noted, some cardholders ended up being "responsible for potentially fraudulent or unauthorized purchases."
Eric Halperin, assistant director for enforcement at the CFPB, said the failure by Goldman Sachs to adequately handle consumer complaints is something that has been seen in the credit card market with other issuers, too, even when consumers are entitled to more protections.
What's more unusual about the Apple Card situation, he said, is the partnership between Apple and Goldman Sachs. He noted that Apple designed the interface with customers and Goldman was responsible for conducting the reasonable investigation of consumer disputes.
"One of the things we found was that the interface designed by Apple would have the consumers send their disputes to Apple but, in many circumstances, those disputes were never forwarded to Goldman."
(This story has been updated to add new information.)
Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X (Twitter) @tompor.