The Wall Street Journal, citing the lawsuit filed in the U.S. District Court of the Western District of Arkansas Thursday (November 2), reported Walmart contends some of the underwriting standards at Synchrony hurt Walmart’s business financially. Walmart is seeking damages of no less than $800 million. Synchrony was the exclusive credit card issuer for close to twenty years until Walmart replaced it with Capital One Financial this past summer.
In October, the Wall Street Journal reported Walmart executives wanted Synchrony to share more of the revenue from the cards and approve more applicants. Walmart had expected to get more out of the Synchrony deal, but sources told the WSJ that loan losses — which stood at about 9 percent of outstanding balances on Walmart cards as of this past spring — impacted the amount it received over the years. In 2017, Walmart started offering loans from Affirm, the FinTech, as an alternative after asking Synchrony to approve more applications for credit. Walmart even introduced Synchrony to ZestFinance, which makes software that helps lenders approve consumers who otherwise would be denied credit.
A Synchrony spokeswoman said the bank plans to defend its stance. “This lawsuit is nothing more than an attempt by Walmart to exert leverage and avoid the contractually defined process for valuing the loan portfolio,” the Synchrony spokeswoman said.
In response, Walmart sent PYMNTS the following statement: “Synchrony breached its contractual obligations to Walmart and as a result, the damages to our company are estimated to be at least $800 million. We made every attempt to resolve this business dispute and avoid litigation, however Synchrony has failed to take responsibility for its actions. We fully expect Synchrony to manufacture counterclaims in an effort to shift the focus away from its own conduct.”
In the lawsuit, Walmart contends loan losses on Walmart cards increased after Synchrony moved some customers with Walmart-only store credit cards to a Walmart co-branded card. Synchrony had converted those customers to increase card usage — and thus revenue — but it resulted in an increase in losses, impacting the revenue Walmart was expected to receive. Loan losses were on average at around 9 percent of outstanding balances on the cards, noted the report.