Goldman ( GS )’s Apple Card business has a surprising downside.

The weakest American borrowers begin to miss payments and lose their loans, and this is showing up in a surprising place: Goldman Sachs.

While competitors like Bank of America are enjoying delinquency rates at or near record levels, Goldman’s credit card loan loss rate hit 2.93 percent in the second quarter. That’s far worse than large U.S. card issuers and “more than subprime lenders,” according to a Sept. 6 memo from JPMorgan.

Goldman Card’s customer profile is similar to that of issuers known for their subprime offerings. More than a quarter of Goldman’s card loans are made to customers with FICO scores below 660. This could expose the bank to significant losses if the economy suffers a downturn, as many predict.

“People are losing their jobs and you’ve had 40-year high inflation. That affects the subgroups more because they’re living paycheck to paycheck,” Fitch Ratings senior director Michael Taiano said in an interview. “The question with Goldman was, were they growing too fast into the late cycle period?”

The flexibility comes at a time of increased focus for CEO David Solomon. Amid pressure to improve the bank’s stock price, Goldman’s money-losing consumer moves have drawn headlines and outrage from some investors and insiders. The investment bank began shifting its strengths from Wall Street trading and consulting to consumer finance in 2016.

But the journey has been a rocky one, marked by management changes and staff departures, missed product deadlines, confusion over branding, regulatory scrutiny and bankruptcy.

Salomon may face questions about its consumer business directors at a board meeting later this week, people familiar with the matter said. There is internal disagreement over who Solomon chooses to lead key businesses, the people said, and insiders believe he will put strong managers in place. Some feel Solomon, who moonlights as a DJ on the international festival circuit, is overrated and putting his personal brand ahead of the bank, the people said.

Goldman’s credit card business, anchored by Apple Card since 2019, is arguably the company’s biggest success in terms of gaining retail credit volume. It is the largest contributor to the segment’s 14 million customers and $16 billion in loan balances, a figure Goldman says will double to $30 billion by 2024.

But ever-increasing losses will tarnish that picture. Lenders consider bad loans “paid off” after the customer has missed payments for six months; Goldman’s 2.93% net payout is more than double JPMorgan’s 1.47% rate on the card business and higher than Bank of America’s 1.60% rate, although those issuers’ ratios are smaller.

Goldman’s losses were larger than Capital One, the biggest underdog among the big banks, which paid a fee of 2.26%.

“If there’s one thing Goldman should be good at, it’s risk management,” says Jason Mikula, a former Goldman employee who now consults for the industry. “So how do they have comparable sub-portfolio amortization rates?”

The biggest reason is that Goldman clients talk about business savvy people who have been with the bank for an average of less than 2 years.

Charges tend to be higher during the first few years that a user has a card. Those losses should moderate as Goldman’s client base ages and consumers struggle, the people said. The bank relies on third-party data providers to compare metrics with similar credit cards and is comfortable with its performance, he said.

Other banks will also be more aggressive in seeking to recover debt, which could improve rivals’ net charge figures, the people said.

But another reason is that Apple Card, Goldman’s biggest credit product, targets a broad swath of the country, including those with low credit scores. At the beginning of the planned rollout, some consumers were surprised to learn that they were approved for the card despite having a checkered credit history.

“Goldman has to play the credit spectrum better than other banks, that’s part of the issue,” said a former executive at a New York-based bank. “They don’t have any offerings for consumers yet, and when you have an Apple Card and a GM Card, you’re looking at Americana.”

In the year After buying HSBC’s US card business in 2011, Capital One is a differentiator among the big banks, focusing on sub-prime offerings.

Capital One 30% of its loans were to customers with FICO scores below 660, a band that includes near-prime and subprime borrowers. That’s a far cry from Goldman’s share of sub-660 clients, which was 28 percent as of June.

Meanwhile, JPMorgan said 12 percent of its loans were to borrowers with scores below 660, while Bank of America said 3.7 percent of loans had FICO scores below 620.

It’s the industry’s “new entrants” who are seeing the “fastest weakening” in credit metrics after a period when borrowers, bolstered by pandemic-triggered inspections, defaulted on their debt more than ever, JPMorgan analyst Vivek Juneja wrote last week.

“Goldman’s credit card net turnover ratio has increased significantly over the past 3 quarters,” he wrote. That’s happening “even though unemployment was very low at 3.7 percent, similar to 2019 levels in August.”

This forced the bank to set aside additional reserves for future loan losses. The consumer goods business is on track to lose $1.2 billion this year, according to internal estimates, Bloomberg reported in June. “The majority” of the bank’s consumer spending this year is tied to building loan reserves, partly because of new rules forcing banks to load up their loss reserves, Salomon told analysts in July.

Managers admit that figure could be worse if the recession forces them to set aside more money for bad loans.

In the year In 2019, Goldman appeared to confirm some of the doubts it faced when it beat established card players to win the Apple Card account. Rivals said the bank would struggle to be profitable without payment cards.

“Credit cards are a tough business to get into,” said Taino, director of Fitch Ratings. “Goldman faces significant losses because its book of business is young. But when you look at the worst unemployment, it’s exacerbating that trend.”