Uncover the $1.2 Billion Restitution Order: How Interchange Fees Led to a Major Legal Victory
In a recent enforcement action, the regulatory authority has penalized Discover Financial Services due to a significant misclassification of consumer credit cards. For nearly 17 years, the bank incorrectly categorized millions of consumer credit cards as commercial, leading to inflated interchange fees on transactions processed through the Discover network. This misclassification resulted in merchants being overcharged by more than $1 billion in interchange fees when processing payments with these misclassified credit cards.
Details of the Penalty Against Discover Financial Services
The regulatory body has outlined the implications of this misclassification, emphasizing the financial impact on merchants and consumers alike. In a concurrent action, the Board of Governors of the Federal Reserve System issued an order mandating corrective measures while also imposing a substantial civil money penalty.
Key Points from the Regulatory Action
- Duration of Misclassification: The misclassification persisted for approximately 17 years.
- Financial Impact: Merchants were overcharged more than $1 billion due to higher interchange fees.
- Regulatory Response: The Federal Reserve has mandated corrective actions and assessed a civil penalty of $100 million.
Consequences for Discover Financial Services
This enforcement action highlights the importance of accurate classification of credit card transactions. The penalties are not only a financial burden on the company but also serve as a reminder for financial institutions to uphold compliance standards. Discover Financial Services, along with its subsidiary, DFS Services LLC, is now required to take immediate corrective action to address these discrepancies.
For more insights on the implications of financial regulatory actions, visit SEC.gov.
