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October 19, 2012 / Puneet Toor

Discover pays $200 million to Settle Federal Charges of Deceptive Marketing

Discover Bank agreed to a $200 million dollar settlement to resolve an investigation brought by federal regulatory bodies who accused Discover of deceptive marketing practices and unauthorized charges.

The investigations were initiated by Federal Deposit Insurance Corporation (FDIC) and Consumer Financial Regulation Bureau (CFRB). FDIC and CFRB accused Discover Bank of credit card customers to purchase costly add-ons services through the use of deceptive marketing practices and billing them for these services, often times without their consent.    These services   included credit monitoring and payment protection services. The federal investigation uncovered that Discover’s call center was  enrolling customers in programs without their consent or letting customers believe the add-ons were free, when they were not. The federal investigation also identified questionable tactics like telemarketing scripts using very vague language that made it difficult for the consumer to understand whether they were agreeing to purchase the product or just considering it.  Discover representatives spoke quickly over any price and term information to impede the customers from hearing those details clearly.  According to federal regulators, “Payment Protection was marketed as a product that allows consumers to put their payments on hold for up to two years in the event of unemployment, hospitalization, or other qualifying life events. Discover also sold its Credit Score Tracker, designed to allow a customer unlimited access to his or her credit reports and credit score.” Additionally, they sold products to help consumers cancel their credit cards in the event it was stolen and to protect against identity theft.

Discover is the sixth-largest credit card issuer in the U.S., and as a result of the accusations will pay back nearly $200 million dollars directly to over 3.5 million consumers. The refund will be split between 3.5 million cardholders charged for add-on products between December 1, 2007 and August 31, 2011. The refund amount will vary from customer to customer, assessed by what product was purchased, when it was purchased and for how long the customer had it. Recipients will be reimbursed at least 90 days worth of fees. Refunds will be automatically credited to cardholder accounts.

This is the second public enforcement crackdown against financial institutions by the CFRB since it was formed in 2010.  The first occurrence was a similar order against Capital One, who was also found to have misled customers into buying superfluous financial products, and was ordered to refund $140 million to customers and pay a $25 million penalty. Now American Express also expects to pay fees related to add-on services, according to its quarterly regulatory filing.

This blow to Discover follows an influx of lawsuits over its telemarketing practices.  Recently, Discover agreed to pay $10.5 million to settle a class-action lawsuit and $2 million to the attorney general of Minnesota on related charges. According to regulatory filings, the bank is currently facing lawsuits by attorneys general in West Virginia and Hawaii, and is also currently being investigated by Missouri’s attorney general.

The $200 million Discover settlement is largest restitution the FDIC has ordered for any institution and demonstrates what might be the beginning of a trend in consumer protection. As CFPB director Richard Cordray stated, “People deserve to be treated fairly by their financial institutions,[…]We will continue to work toward that goal with great determination.”

If you feel you have been a victim of unfair consumer practices or that your rights have been violated, contact Khorrami, LLP for more information.

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One Comment

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  1. Carroll Moore / Mar 3 2013 1:22 pm

    just wondering when payout will be paid filed claim on computer understood payment would be made by Feb 21 Have not recieved

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