(TNS) — Pity poor Apple. A couple of months ago, the big consumer tech company launched what seemed to be a very clever marketing gimmick — an Apple-branded credit card that could be used only in conjunction with its iPhones and its Apple Pay service.
It seemed a foolproof way to beef up purchases of iPhones and enrollment in Apple Pay.
But now comes the backfire. Several Apple Card customers — including, most embarrassingly, Apple co-founder Steve Wozniak — have complained publicly that the credit limits set for the card seem to discriminate against women, even when their finances are jointly held with their spouses.
And there seems to be no one to talk to for an appeal. Not at Apple, nor at Goldman Sachs, the giant investment bank that is actually running the card for Apple.
Wozniak, who is no longer associated with Apple management, tweeted that he was granted a credit limit 10 times the size of his wife's. "We have no separate bank or credit card accounts or any separate assets," he stated. "Hard to get to a human for a correction though. It's big tech in 2019."
New York State financial regulators are now looking into the situation. Linda Lacewell, superintendent of the state's Department of Financial Services, dismissed out of hand Goldman Sachs's defense that the credit limits are scored by an algorithm that scores individual creditworthiness.
"New York law prohibits discrimination against protected classes of individuals, which means an algorithm, as with any other method of determining creditworthiness, cannot result in disparate treatment for individuals based on age, creed, race, color, sex, sexual orientation, national origin, or other protected characteristics," Lacewell stated in a post on Medium.
The controversy over the card took flight last Thursday, when a software entrepreneur named David Hanson tweeted that the card was a "sexist program." He described its rather more profanely, which is why his tweet can't be published here. But it went on to specify that "my wife and I filed joint tax returns, live in a community-property state, and have been married for a long time. Yet Apple's black box algorithm thinks I deserve 20x the credit limit she does. No appeals work."
He added that his wife experienced further restrictions on her card spending. "Nobody is authorized to discuss the credit assessment process. No opportunity to present evidence. Just a 'sorry, your wife is deemed to be 1/20th the credit worth you are, check again in 6 months!'" (Six months is the minimum Goldman says it requires to consider requests for higher credit limits.
Others chimed in on Hanson's Twitter thread, notably Wozniak.
What may be worst for Apple is that the blowup has exposed the truth about the Apple Card: First and foremost, this isn't an "Apple" card. Under the hood, it's a Goldman Sachs card, with Apple branding. Goldman Sachs is responsible for establishing the credit lines for individual applicants and provides the "credit platform" backing the card — in other words, it's backed by Goldman's money.
Apple isn't all that forthright about its relationship with Goldman Sachs. "To create a different kind of card, we worked with a different kind of partner," it says on its product page, hailing Goldman "as a partner that was up for the challenge of doing something bold and innovative."
Well, good lord, Goldman Sachs is one of the largest and oldest investment banks on Wall Street that does most things in the same old way, just better than many of its rivals. This is a "bold and innovative" partner?
Apple's card marketing is plainly built around the idea of yoking the company's cultish relationship with its customers to what is, on the surface, a mostly conventional credit card. The product has a couple of tweaks, though not all are entirely novel.
There's no annual fee, which is hardly unique in the credit card world. It offers rebates on purchases — 3% on Apple products and those at merchants such as T-Mobile that have made deals with Apple, 2% on anything bought with Apple Pay, 1% on everything else. That's also not novel.
If you miss a payment, Apple won't charge a late fee, though interest will still accrue. That's good, but the interest on unpaid balances ranges from 12.74% to 23.74%, based on users' credit history, which is no particular bargain. Apple Card also comes with privacy and security enhancements tied to your iPhone.
Apple brags that there are "no fees. Not even hidden ones." Is that so? Card users must have an iPhone running the latest system software, which rules out some of the older iPhone models. But since the new iPhone can cost up to $1,099, and even those a few generations old still run more than $400, that could be regarded as a pretty significant hidden fee.
Indeed, the requirement that each Apple Card user have an individual iPhone and therefore an individual account is what's gotten Apple into trouble. Most traditional credit card accounts allow for multiple "authorized users," typically family members, to share an account and piggyback on each other's credit ratings. There may be slight differences in credit scores, but probably not dramatic ones.
Not the Apple Card. Apple says "Goldman Sachs uses your income and the minimum payment amounts associated with your existing debt to assess your ability to pay" in setting an applicant's initial credit limit. "In addition, Goldman Sachs uses many of the same factors that are used to assess whether your application is approved or declined, including your credit score and the amount of credit you utilize on your existing credit lines."
Apple refers all questions about these issues to Goldman, which told me by email: "We look at ... factors like personal credit scores, how much debt you have, and how that debt has been managed. Based on these factors, it is possible for two family members to receive significantly different credit decisions."
Goldman specifically says "in all cases, we have not and will not make decisions based on factors like gender."
Yet applicants really have no clue to what factors Goldman actually uses to assess their creditworthiness or how it weighs those factors. The weighing is placed in the hands of the all-powerful algorithm, which doesn't seem amenable to appeal.
As New York's Lacewell observes, the fact that these judgments are left to an automated formula doesn't excuse the bank from responsibility for how the judgment is made.
Nor does it guarantee that the judgment will be gender- or race-neutral.
Lacewell noted that her agency has launched an investigation into whether an algorithm developed and marketed by UnitedHealth Group has a discriminatory effect that harms black patients' access to healthcare. The effect was identified by researchers at UC Berkeley.
The reason may be that algorithms, for all that they're supposedly based on artificial intelligence, rely on inputs from the real world that may reflect long-embedded discrimination against women or minority groups.
Outsourcing potentially discriminatory judgments to a machine won't excuse its human developers, Lacewell warned. "Financial service companies are responsible for ensuring the algorithms they use do not even unintentionally discriminate against protected groups."
In other words, Apple and Goldman Sachs may have just discovered the limits of technology.
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