The news: Ally Financial sold its credit card business to subprime credit card lender CardWorks and its subsidiary Merrick Bank, per a press release. Ally’s portfolio includes 1.3 million active cardholders and $2.3 billion in credit card receivables.
How we got here: Ally, which began as the lending arm of General Motors called GMAC, acquired its credit card business from Fair Square Financial in 2021 after other failed credit card ventures in years past.
Exiting the credit card business was part of Ally’s larger restructuring, in which it also ended mortgage originations and laid off about 5% of its staff.
Why this matters: Ally’s card program targets consumers with middle to low credit scores. This was becoming a problem for Ally given this consumer segment faced the brunt of financial stress from stubborn inflation and high interest rates.
These factors led to concerning charge-off levels.
Our take: Ally’s subprime lending difficulties give us insights into the financial health of consumers with lower credit scores.
It also shows how tough it is for issuers to stay competitive in this segment, especially without higher-tiered cards or other consumer products or fees to offset losses.
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