Credit card debt settlement service

Discover credit card company, Discover Financial Services, faces a tough year ahead. The 6ht largest U.S. credit-card issuer by customer spending, estimates a regulatory enforcement probe on their marketing practices by the Consumer Financial Protection Bureau and the Federal Deposit Insurance Corp may hurt their net income over $100,000,000.

Here’s the kicker – Discover may ultimately owe the government a lot of money in sanctions because of illicit marketing of “fees.” The company announced both the Consumer Financial Protection Bureau and Federal Deposit Insurance Corp. alerted Discover of a planned joint enforcement action against them over their marketing of fee- based products, including payment protection.

According to the Government Accountability Office, credit card companies collected $2.4 billion in fees for debt protection products in 2009.” Discover owns the nation’s fourth-largest payments network after Visa, MasterCard, and American Express, so who knows what the final sticker shock will be.

A regulatory and enforcement investigation of such magnitude could be devastating to Discover shareholders. It could dig deeper into Discover Financial Services practices, going well beyond the marketing of the Discover credit card. What if the feds also turn stones on the company’s electronic payment services, student and personal loan services, ant marketing of savings products and money market accounts? Discover Financial Services also operates a national automated teller machine (ATM)/debit network Shares of Discover Financial Services (NYSE:DFS) opened in January 27, 2012 below their pivot of $27.82.

The turmoil for Discover in defending itself against legal and regulatory issues started well before the Consumer Financial Protection Bureau probe. In 2010, Minnesota Attorney General Lori Swanson sued the company, alleging “their telemarketers failed to tell consumers when they were agreeing to purchase optional, fee-based services, including payment protection.”

As a result, Discover entered into a consent judgment to settle the lawsuit. Earlier the Discover credit card company also agreed to a preliminary settlement of eight class-action cases that also attacked its marketing tactics. Thus, it appears that Discover had been bleeding at the seams for a number of years now. But, the carnage continues…

In the emergence of the CFPB, one thing’s for certain – many former illegal credit card practices will soon come to a screeching halt. On July 21, the new agency assumed federal consumer law enforcement on banks with more than $10 billion in assets. Unlike the FTC, it has complete power to write new rules and absolute jurisdiction over most credit card companies. The CFPB sanction can be as much as $1,000,000 per violation, per day!

Richard Cordray, former Ohio Attorney General, just became the CFPB top honcho and will be considering whether new rules are needed for debt protection products of the sort at issue in the Minnesota lawsuits. Being a new agency with a recently appointed director, credit card companies are in the clouds not knowing how the CFPB intends to exercise its regulatory, supervisory, examination and enforcement authority.

Discover also announced, “Should the CFPB discourage the use of products we offer or steer consumers to other products or services that it deems to be preferable, we could suffer reputation harm and a loss of customers.” Perhaps hearing it from the horse’s mouth will give you a clearer perspective of the might of the CFPB over rogue financial institutions.

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  2. Rebecca Lindquist says:

    The funny thing is, I haven’t heard of anyone using a Discover card in such a long time! Usually it’s Visa, MasterCard, or AMEX. I was beginning to forget that Discover even existed!

  3. Brian Duffy says:

    The first time my girlfriend flashed her Discover card in front of me, I laughed and blurted out, “Who uses Discover?” The waitress didn’t do me any favors when she said my significant other’s plastic wasn’t any good there.

  4. Michelle DuBois says:

    Great post! Discover has addressed some of its shortcomings. Since 2010 alone, the number of merchants that accept Discover has increased by 7%. The company banked on this in a big way during the fourth quarter, where DFS saw an 8% bump in sales volume on its cards. Discover’s cash-back rewards also have proven an attractive lure to consumers looking for ways to squeeze out an extra buck. :)

  5. Ashley Cooley says:

    Aww you guys! I LOVE my Discover card! Hehe

  6. Cari Beaque says:

    Yeah Discover was sued in 2010, I think. It was because its telemarketers failed to tell consumers when they were agreeing to purchase optional, fee-based services, including payment protection. Discover entered into a consent judgment in November to settle the lawsuit and earlier agreed to a preliminary settlement of eight class-action cases challenging its marketing tactics, regulatory filings show.

  7. Tony Lee says:

    Another story about Discover, they have been going down hill since the last time something like this happen. I fould that the payment system was a little mess as well when I was once a holder of that type of credit card. I recommend Master card if your going to use a credit card and everything. Its so much easier!

  8. Charlene says:

    It seems like all of the credit cards have issues with presenting these fee based services as “free”. I know over a number of years we have gotten a lot of calls asking us to sign up for “free” services with credit cards when more questioning revealed they were only free for a trial period.
    Hearing that this is a big problem with Discover will definitely discourage me from using them.

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