Walmart files lawsuit against Synchrony Financial, a credit card issuer

The complaint, filed in the US District Court of the Western District of Arkansas, alleges that some of Synchrony's underwriting standards prejudiced Walmart. The merchant declared that he was claiming damages "the amount of which must be proven at trial but estimated at not less than $ 800 million".

Synchrony has been the exclusive issuer of Walmart credit cards for nearly two decades, until Walmart announced at Synchrony this summer that it would replace the card issuer by

Capital One Financial
Corp.

Last month, the Wall Street Journal reported that the relationship between Synchrony and Walmart had deteriorated since at least last fall. Among other problems, Walmart executives became angry because they wanted Synchrony to share more card revenue, the newspaper reported at the time.

(Previously: The $ 10 Billion Walmart Credit Card Dispute)

In June, Walmart accounted for approximately $ 10 billion of Synchrony's retail card sales. Although Capital One becomes the new card issuer for Walmart next year, it is unclear what will happen to these balances.

A spokeswoman for Synchrony said Thursday that Walmart's lawsuit was unfounded and that the bank intended to vigorously defend its position. "This lawsuit is nothing more than an attempt by Walmart to leverage and avoid the contractually defined process of valuing the loan portfolio," said Synchrony's spokesperson.

A spokesman for Walmart said the company had "done everything" to resolve the dispute and avoid prosecution.

"We really expect Synchrony to make counterclaims to deflect attention from his own conduct," he said.

Last month, the Journal reported that the impact of high loan losses was one of Walmart's major concerns with the Synchrony partnership. As a result of these losses, the company generated less revenue than expected in connection with the Synchrony transaction.

The prosecution, which is heavily redacted, refers to two types of cards issued by Synchrony: those that can only be used at a specific merchant – in this case, Walmart – and co-branded cards bearing the name Walmart and which can be used to the maximum other merchants.

Loan losses on Walmart cards increased after Synchrony converted some consumers who had Walmart-branded credit cards into Walmart co-branded cards, according to people familiar with the matter. Much of this activity has occurred between 2011 and the end of 2016, said one of the people. Synchrony converted these cards in part to increase usage and card revenue, but the losses increased and affected the revenue that Walmart was expecting to receive, said the person. As of the spring, loan losses accounted for about 9% of outstanding balances on Walmart cards, added the same person.

The lawsuit also refers to comments made by Synchrony's executives during the company's earnings call at the end of July, the day after the newspaper announced that Walmart had chosen Capital One to replace Synchrony. Brian Doubles, Synchrony's chief financial officer, and general manager Margaret Keane, said the terms of a new deal would not have made economic sense for Synchrony. The paper reported last month that Synchrony had tried to save the deal until mid-July.

Write to AnnaMaria Andriotis at [email protected]