FDIC Slams Discover with $250M Fine: Major Merchant Restitution Required!

The Federal Deposit Insurance Corporation (FDIC) has recently taken significant enforcement actions against Discover Bank, a financial institution based in Greenwood, Delaware. These actions were prompted by long-standing issues related to credit card classification that led to overcharging merchants by more than $1 billion in interchange fees. This article explores the details of these enforcement measures and their implications for the banking industry.

FDIC Enforcement Actions Against Discover Bank

The FDIC’s enforcement actions against Discover Bank include:

• Amended and Restated Consent Order: This order requires the bank to implement corrective actions.
• Order for Restitution: Discover Bank must develop a plan to return at least $1.225 billion to affected merchants and intermediaries.
• Order to Pay: A civil money penalty of $150 million has been imposed on the bank.

Background of the Misclassification Issue

The FDIC’s investigation revealed that over a span of approximately 17 years, Discover Bank had misclassified millions of consumer credit cards as commercial cards. This misclassification resulted in:

• Merchants incurring significantly higher interchange fees, which are typically elevated for commercial card transactions.
• Systematic overcharging that affected a wide range of transactions, impacting not only merchants but also merchant acquirers and other intermediaries.

The agency emphasized that these actions violated the Federal Trade Commission Act, necessitating restitution and penalties. The scale of the overcharging, exceeding $1 billion, highlights the severity of the issue.

Federal Reserve Actions Against Discover Financial Services

In a related move, the Federal Reserve also took action against Discover Bank’s parent company, Discover Financial Services, located in Riverwoods, Illinois. The Federal Reserve’s measures included:

• Ordering additional corrective actions.
• Imposing a civil money penalty of $100 million.

Implications of These Enforcement Actions

The coordinated enforcement measures by both the FDIC and the Federal Reserve aim to hold Discover Bank and its parent company accountable for their long-term misrepresentation. Key outcomes include:

• Ensuring remediation for affected merchants.
• Restoring integrity to card classification practices.

For more information on the FDIC’s enforcement actions, visit the FDIC official website.

These developments reflect a growing regulatory focus on transparency and fairness in the banking sector, emphasizing the need for financial institutions to adhere to ethical practices in their operations.