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Walmart has ended an exclusive credit card agreement with Capital One after a one-year legal battle and a court judgment in the retailer’s favour.
On Friday (May 24), the world’s largest supermarket chain said it had ended its agreement with Capital One as the exclusive issuer of two rewards cards.
The card programme offered qualified Walmart customers the Capital One Walmart Rewards Mastercard and the Walmart Rewards Card, a private-label card exclusively for Walmart purchases.
In a joint statement, the two partners said that “nothing changes today” for existing cardholders, who can continue to earn and redeem rewards as usual.
“Until informed otherwise, cardholders can continue to use their Capital One Walmart Rewards Card wherever Mastercard is accepted and the Walmart Rewards Card for purchases at Walmart,” they said.
Capital One will retain ownership and servicing of existing credit card accounts, while more information will be provided to Walmart Rewards Card holders in the “coming months”.
The end of the partnership follows a lawsuit that Walmart filed against Capital One in April 2023.
As alleged in the complaint, Capital One had violated the terms of its contract with Walmart on numerous occasions, allowing Walmart to exercise a termination clause.
However, despite admitting in writing that it had failed to uphold several service level agreements (SLAs), Capital One initially disagreed with Walmart’s interpretation of the termination clause.
Walmart turns to litigation
The exclusive partnership was signed in 2018 and was carried out without dispute up until 2022, when evidence of service failures at Capital One came to light.
Walmart said its contract with Capital One included “carefully defined” SLAs that required the issuer to maintain “exceptional” standards of customer service. Some of those SLAs were further defined as “Critical SLAs”, upon violation of which Walmart reserved the right to terminate the contract.
For example, when a customer needed a replacement credit card for any reason, Capital One was obligated to mail the replacement card within five business days. For this Critical SLA, Capital One had to meet the standard for at least 99.9 percent of replacement credit cards issued.
Other Critical SLAs included transaction posting and payment processing time. For transactions received on processing days, Capital One was required to post at least 99.9 percent of these transactions by the close of the following posting day.
Similarly, depending on the transaction type, processing had to take place within one or within five business days of receipt.
If Capital One failed to meet the criteria of a Critical SLA five times or more in a rolling 12-month calendar period, this would be considered a “major service failure”.
Such a failure would give Walmart the right to terminate the partnership, on the condition that Walmart delivered a notice of termination within 90 days of learning of the fifth Critical SLA breach.
A helping hand from PwC
Capital One was required to report its performance on each SLA each month and, in 2022, it reported that it failed four Critical SLAs in a 12-month period.
However, in January 2023, the issuer “belatedly admitted” that it had also failed a Critical SLA in June of the previous year. At the time, PwC was carrying out an audit of Capital One’s performance on Walmart’s behalf.
In February, in response to an information request from Walmart and PwC, Capital One stated that “[f]or Critical SLAs in 2022, Capital One missed the Payment Processing SLA three times and the Card Issuance and Transaction Posting SLAs once each”.
On April 6, 2023, Walmart sent Capital One a notice that it was terminating the contract. The termination notice was sent within 90 days of Walmart’s discovery of the June 2022 Critical SLA failure and was therefore “timely”, Walmart’s lawsuit states.
However, Capital One argued in court that in order to exercise the termination clause, it had to fail the same Critical SLA five times or more in one year.
In March this year, a federal judge ruled in Walmart’s favour, stating that the supermarket chain was “legally entitled” to end the partnership.
“The Court finds that the Agreement is unambiguous, and that its plain meaning accords with Walmart’s interpretation,” wrote Judge Katherine Polk Failla. “‘A Critical SLA’ — as used in the Termination Right — clearly means ‘any one of the Critical SLAs’, and not ‘the same Critical SLA’.”
The verdict will come as a blow to Capital One, which took over as the exclusive issuer of the Walmart credit card from Synchrony Financial.
In court documents filed last week, Capital One said there are approximately $8.5bn in loans in the existing Walmart credit card portfolio.
Although the exact duration of the original contract is unknown, it is clear that the partnership was intended to be a “multi-year” relationship, as per court documents.
