Bloomberg News

Discover to Face FDIC Enforcement Claim Over Marketing Tactics

September 29, 2011

Sept. 29 (Bloomberg) -- Discover Financial Services, the top performer this year in the Standard & Poor’s 500 Financials Index, said U.S. regulators plan to bring an enforcement case over how the credit-card issuer marketed fee-based products.

The Federal Deposit Insurance Corp., which regulates firms that accept customer deposits, decided to press the claim after investigating the bank’s marketing practices, Riverwoods, Illinois-based Discover said yesterday in a quarterly filing.

“Since well before the FDIC’s review began, Discover Bank has made changes to both its fee-based products and program, and Discover Bank believes its current practices substantially address the FDIC’s concerns,” the lender said in the filing.

Minnesota Attorney General Lori Swanson sued the company in December 2010, claiming that Discover telemarketers failed to tell consumers when they were agreeing to purchase optional, fee-based services, including payment protection. Discover, led by Chief Executive Officer David Nelms, 50, agreed in June to a preliminary settlement of eight class-action cases challenging its marketing tactics, according to an earlier filing.

The company’s telemarketers, selling identity-theft and credit-score monitoring services, failed to tell consumers when they were agreeing to buy those products, which generated more than $300 million for Discover in 2009, Swanson had said.

“While disappointed by their decision, Discover has cooperated fully with the FDIC and we look forward to putting the matter behind us,” Leslie Sutton, a company spokeswoman, said in an e-mailed statement.

Andrew Gray, a spokesman for the FDIC, declined to comment.

West Virginia, Missouri

The West Virginia Attorney General’s office sued Discover last month, challenging the firm’s enrollment of card-holders in fee-based products, according to yesterday’s filing.

“The company will seek to vigorously defend all claims asserted against it,” Discover said.

The Missouri Attorney General’s office also is investigating Discover’s marketing of its payment-protection service and the lender is cooperating with the probe, according to the filing.

Discover fell 98 cents to $23.88 yesterday in New York. The shares have climbed 29 percent this year, compared with a 25 percent decline for the 84-company S&P 500 Financials Index.

--Editors: Peter Eichenbaum, Dan Reichl

To contact the reporter on this story: Donal Griffin in New York at dgriffin10@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.


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