Ally Financial is reportedly looking to get out of the credit card business—again.
According to Bloomberg, Ally Financial, formerly known as GMAC, is looking for a buyer for the credit card division it acquired in 2021 from Fair Square Financial. Fair Square’s prime offering was the Ollo Card, “a sub-prime card by every measure,” according to Brian Riley, Co-Head of Payments at Javelin Strategy & Research. Ally has long targeted borrowers with mid-to-low credit scores.
During its Q3 2024 conference call, the bank’s CFO, Russell Hutchinson, said that Ally’s credit card portfolio was in good shape and performing as expected. However, the company noted that the shifting operating environment had created increased uncertainty in the short-term forecast, especially concerning credit costs and profit margins.
“Ally has been struggling with consumer credit as it tried to expand its business from auto financing,” said Riley. “In the recent Dodd-Frank Stress Tests, Ally projected loss rates under severely challenged economic situations of more than 40%. Meanwhile, the bulk of the industry fell between 16% to 20%.”
Third Time Is Not the Charm
Ally Financial is a storied U.S. company with a history dating back to its founding in 1919 as General Motors Acceptance Corporation. In 2006, General Motors sold a majority interest to private equity firm Cerberus. The company was rebranded as Ally Financial in 2010.
The anticipated sale would mark the third time in the past five years that Ally has exited the credit card business—this time, potentially for good.
The initial step was the launch of the Ally CashBack credit card in a partnership with TD Bank in 2016. However, three years later, faced with consistent losses, Ally stopped onboarding new customers. In 2020, the card was rebranded as the TD Bank Cash Credit Card.
That same year, Ally announced a deal to acquire subprime credit card lender CardWorks for $2.65 billion, but the agreement was mutually terminated after the onset of the pandemic.
Finally, in December 2021, Ally Financial spent $750 million to purchase Fair Square Financial, a digital-first credit card company. At the time, Fair Square had roughly 693,000 cardholders and $816 million in loan balances.
“We’ve been trying to figure this out for years and years,” Ally’s then-CFO, Jennifer LeClair said at the time. That statement remains true today.
