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Positioning Credit Cards for an Upcoming Mess: Apple Invokes the Golden Rule, Top Banks Follow

Brian Riley by Brian Riley
March 17, 2020
in Analysts Coverage, Credit
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Positioning Credit Cards for an Upcoming Mess: Apple Invokes the Golden Rule, Top Banks Follow
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Today’s NYTimes provides a view on how credit card companies are positioning their businesses for unforeseen issues durng the Coronavirus debacle.  Short story: Some creditors are better than others, and newcomer Goldman Sachs leads the pack.

Goldman Sachs presented a novel approach (It was the bank’s idea, not Apple’s):

On Sunday morning, Goldman Sachs, the financial partner on the new Apple credit card, said it would allow all cardholders who asked for help to skip their March credit card bill. The interest would disappear, never to be charged. And Goldman would foot the bill itself, as the financial backer of the partnership.

Which brought more traditional players to bear:

Several replied right away and said they would allow people to skip payments, interest-free. They include American Express (cards), Capital One (auto loans and maps), and JPMorgan Chase (cards, so far).

And in the true style of the NYT, the story points to the Federal Register, where the Federal Reserve Board of Governors suggested some compassion:

Federal financial institution regulators and state regulators today encouraged financial institutions to meet the financial needs of customers and members affected by the coronavirus. The agencies recognize the potential impact of the coronavirus on the customers, members, and operations of many financial institutions and will provide appropriate regulatory assistance to affected institutions subject to their supervision.

Ironically, one of the financial institutions that needed the most help during the Great Recession had the limpest positioning: Ally Financial.

Here’s one surprising company that would not make an ironclad commitment: the auto lending giant Ally Bank, which was the beneficiary of a federal bailout during the last financial crisis. Ally did say it would work with customers to identify their specific challenges and tailor solutions for them, but would not pause bills unilaterally.

In response, the New York Times shamed Ally.

“As has been our practice during previous periods of hardship, we are not using a one-size-fits-all approach,” a company spokeswoman said in an emailed statement on Monday. But this isn’t shaping up to be like past hardships. Statements like this — from companies that would not exist but for their own recent rescues — are baffling.

Ironically, General Motors Financial sounded a chord similar to its spin-off, Ally. 

General Motors also received a bailout during the last big downturn. What is it doing for customers now?

General Motors Financial said that it was not “currently” matching Goldman’s offering to customers. Instead, it pointed me to a website saying that it would be hard to contact its representatives right now. For those who succeed, this is the policy: “Each customer’s situation is unique, and we’re here to help.”

The economy is in a unique position.  Everything will settle down sooner or later.  Goldman Sachs’ approach made sense, and many top banks followed. Right now, there are many issues to figure out that extend through society.  Goldman Sachs made the right call on this issue.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

Tags: AllyAmerican ExpressAppleBanksCoronavirusCreditCredit Card Interest RatesCredit Card IssuerCredit CardsFederal ReserveGoldman Sachsinterest ratesJPMorgan ChaseLoans
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