Bread Financial Holdings, formerly Alliance Data Systems, recently modernized its private label credit card platform by moving tens of millions of records to the cloud, but a technological breakdown turned the project into a customer service nightmare.
The outage in late June and early July left some customers unable to pay their credit card bills on time at many of the more than 130 retailers that Bread serves through its subsidiary Comenity Bank. The issue has sent inflation-stressed users across the United States to register complaints on social media and with regulators.
Many Bread customers have documented their frustrations on Twitter and Facebook, including their failed attempts to reach customer service agents. Complaints continued to swirl throughout the July 4 weekend, and many customers also alerted the Consumer Financial Protection Bureau.
The almost instantaneous flurry of complaints the Bread outage produced in prominent social media channels underscores how massive consumer adoption of digital payments and technology during the pandemic has shortened the window for managing crisis for financial service providers.
According to Marcia Tal, who analyzes this data as CEO of Tal Solutions.
Between August 1, 2021 and August 2, 2022, Bread Financial received 533 complaints about issues with credit card payments – and 73% of these occurred in the past 90 days, during the outage window of Bread’s credit card payment system, says Tal.
This is now the second month in a row that I have tried to pay my bill early and your website is down. Now, if I don’t pay my bill by 2 p.m. tomorrow, you’ll hit me with late fees. I deposit this card after my next payment. You are losers.
— Christian Chandler (@OldStoneFace) August 3, 2022
“I assume that the system outage at Bread Financial will be reviewed and analyzed by the CFPB, not only in terms of the reason for the outage, but its resolution and impact on consumers,” Tal said.
Bread has been in regular contact with regulators to “proactively communicate the specific steps we are taking to ensure a fair resolution for affected customers,” Rachel Stultz, Bread’s director of corporate affairs, said via email.
Bread promised affected consumers that their inability to pay a bill on time would not affect their credit scores.
Bread’s customer service phone lines were restored on June 30 and online account access was restored for most customers on July 1, but there was a period when the company experienced intermittent outages. , said Stultz.
On social media, many consumers continued to complain about not being able to reach live customer service agents to check on their account status, and complaints continued to increase throughout July.
On July 26, the Berwyn, Pennsylvania-based law firm Sauder Schelkopf filed a class action lawsuit in federal court in Columbus, Ohio, alleging that many of Bread’s clients were unable to accessing their Comenity card accounts and payments withdrawn from their bank were not posted immediately. on their card account, resulting in late fees.
“Consumers should not be forced to bear the burden of problems caused by Comenity,” said firm partner Joseph Kenny in a press release.
Credit card late fees became a major target after the CFPB in June provided that prior notice of the proposed regulations exploring how issuers set these fees.
The CFPB has proposed blocking a 9% rise in credit card late fees that is expected to occur next year as inflation rises. According to a report the CFPB published in March.
According to Richard Crone, a director of Crone Consulting LLC.
“In the years leading up to the financial crisis and as late as 2008, Bread was among the companies that charged consumers $10 to expedite the payment of bills before the due date, a practice that has fallen out of favor. “said Crone, who documented Bread’s past policies. from when it was called Alliance Data Systems.
Bread is probably not the only financial services company or credit card issuer to risk such problems, according to Crone.
“Many companies trying to modernize and move things to the cloud are integrating new technologies with older internal and central processing systems based on 50-year-old technology,” Crone said. “Bread’s recent outage suggests they are still working with a combination of older internal systems and newer platforms that require humans to maintain bug fixes and perform upgrades – it’s not Military grade like some of the new systems being built that finance all-digital companies are creating.”
Bread CEO Ralph Andretta recently noted that the company experienced setbacks when migrating its primary processing system to Fiserv.
“While any system migration of this magnitude comes with some degree of anticipated conversion challenges, our teams are working to ensure a fair resolution for all cardholders and brand partners who may have been impacted. during this period,” Andretta told analysts on July 28 during the discussion. the company’s earnings in the second quarter.
Bread’s information processing costs are “rising” due to the ongoing technology modernization program, Bread chief financial officer Perry Beberman added.
No mention was made during the presentation to analysts of any increased scrutiny by the CFPB. The agency cannot comment on what investigations it may or may not undertake, said CFPB public affairs specialist Raul Cisneros.
“I believe consumer complaints to the CFPB regarding the bread outage are the start of a problem that has yet to be fully uncovered or its impact fully understood,” Tal said, noting that most Banking management teams are paying greater attention to the number, scale and business impact of recent credit card industry regulatory enforcement actions by the CFPB.