Tomo Card Cut Off By Equifax, Experian & Transunion

Written By: Jose Rodriguez
Edited By: Kellee Rodriguez
October 27, 2024 / GotCredit.com

TomoCredit, a fintech startup aimed at helping underserved populations like immigrants and international students build credit, has had a rough year. Founded in 2019, the company launched its credit card to cater to U.S. residents with limited credit histories. However, by the fall of 2023, many Tomo cardholders found themselves unable to use their cards, with some even struggling to access locked rewards funds. The company attributed the disruption to "system updates," but the reality was much more complicated.

The Financial Trouble Behind the Scenes

The real reason behind the sudden halt in Tomo’s credit card operations came to light through a lawsuit filed by Silicon Valley Bank (SVB) in July 2023. Tomo had defaulted on a $30 million line of credit from SVB, just months after announcing it had secured $100 million in debt financing and $22 million in equity investment from prominent backers like Mastercard and Morgan Stanley. According to court documents, Tomo experienced multiple defaults on the loan, leading to strained relations with SVB and eventually causing the bank to cease extending new credit for the company’s credit card operations.

Despite a payment of $5.1 million to SVB in January 2024 and a subsequent dismissal of the lawsuit in February, the damage had already been done. By early 2024, Tomo’s bank partner, Community Federal Savings Bank, had stopped working with the company, and Tomo’s credit card business remained in limbo.

A Pivot to Subscriptions Amidst Rising Complaints

In the summer of 2023, Tomo CEO Kristy Kim shifted the company’s focus from credit cards to a subscription-based credit improvement service. While this pivot was presented as a way to reach a "broader client group," the reality is that it came amid significant financial and operational challenges. TomoCredit had become the target of numerous consumer complaints, with 557 grievances filed with the Better Business Bureau in just one year, many related to difficulties canceling subscriptions. For comparison, PNC Bank, which serves over 10 million customers, received only slightly more complaints (599) over the same period.

After facing pressure from dissatisfied customers and public scrutiny, Tomo added a "Cancel Membership" button to its app in October 2024, making it easier for customers to terminate their subscriptions. Still, the company's credibility had taken a hit, and questions lingered about its ability to regain consumer trust.

What The Credit Dude Thinks

TomoCredit’s struggles underscore the importance of transparency and financial stability in the credit industry. As someone who has spent years helping people improve their credit, I understand the value of building trust with customers. When a financial institution promises to help consumers build or repair credit, it must deliver on that promise consistently. Any disruption—especially one as significant as defaulting on a loan or suspending credit card services—can damage not just the company's reputation but also the financial well-being of its customers.

Tomo’s pivot from credit cards to subscriptions appears to be a move born out of necessity rather than strategy. While subscription services that help improve credit can be valuable, they should not come at the expense of customer service or transparency. The fact that Tomo had to be pressured into making it easier to cancel subscriptions is a red flag. When customers feel trapped in a service, it only adds to their financial stress instead of alleviating it.

For consumers, it’s crucial to thoroughly vet any financial product or service. Always read the fine print, understand the company's history, and be aware of any warning signs—like frequent customer complaints or sudden changes in service.

3 Key Takeaways for Consumers

1. Always Research Before Signing Up: Whether it's a credit card, a loan, or a subscription service, take the time to investigate the company’s history, customer reviews, and any recent legal or financial issues. This can help you avoid unexpected disruptions to your financial plans.

2. Stay Vigilant About Your Accounts: If you experience sudden changes in service or have trouble accessing your funds, don’t hesitate to reach out to the company for answers. If you don’t get a satisfactory response, consider filing a complaint with a consumer protection agency.

3. Transparency Matters: Companies that are upfront about their challenges and actively work to resolve them are more trustworthy. If a company is evasive or consistently receives poor customer feedback, it may be time to look for alternatives.

Conclusion

TomoCredit’s journey serves as a cautionary tale for both consumers and startups in the financial sector. A company's ability to deliver on its promises, especially in the credit industry, can make or break its success. For consumers, understanding the background of a financial service provider and being proactive in monitoring your accounts is essential for safeguarding your financial health.

For more advice on managing credit and avoiding financial pitfalls,make sure to subscribe to the Got Credit? YouTube channel and follow Got Credit? on Instagram.

If you’re looking to improve your credit or need help navigating complex credit issues, visit www.gotcredit.com/signup to get started.

Source: Forbes