Discover Financial Services wants to settle a lawsuit accusing it of overcharging merchants. The lender revealed the proposed settlement in the class-action case in a Wednesday (July 3) filing with the Securities and Exchange Commission (SEC). “As of March 31, 2024, the company had increased its liability to provide refunds as a result of the card product misclassification […]
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Discover Financial Services wants to settle a lawsuit accusing it of overcharging merchants.
The lender revealed the proposed settlement in the class-action case in a Wednesday (July 3) filing with the Securities and Exchange Commission (SEC).
“As of March 31, 2024, the company had increased its liability to provide refunds as a result of the card product misclassification to $1.2 billion,” the filing says. “The company expects all payments under the settlement agreement to be covered by that amount.”
During an earnings call last July, the company revealed it had been overcharging merchants for more than a decade.
“Beginning around mid-2007, we incorrectly classified certain card accounts into our highest merchant and merchant-acquiring pricing tier,” then-CEO Roger Hochschild said at the time.
Hoschild resigned as chief executive weeks later. The regulatory filing says Discover reached an agreement with those merchants on July 1, though it still needs court approval.
The news comes as Discover is in the middle of a $35.3 billion acquisition by Capital One. The deal, announced in February and expected to be one of the largest of the year, will create a global payments platform with 70 million merchant acceptance points in more than 200 countries and territories.
As Thredd CEO Jim McCarthy told PYMNTS soon after the deal was announced, some regulatory pressure is to be expected as the companies merge.
“There’s going to be a really long runway” on the deal, said McCarthy, “and Capital One has some hard decisions to make about what they will want to be with this combination of assets.”
In April, Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra expressed skepticism about mega-mergers involving lenders.
“There will need to be careful scrutiny of two quite large financial institutions, combining them and what might be the effect if they failed,” Chopra said, specifically commenting on the Capital One/Discover deal.
“Anytime you’re talking about large players like this merging, one has to not just look at competitive effects, one also has to look at the impact on financial stability.”
Discover’s proposed settlement comes weeks after the company’s Pulse Network settled a 10-year-old antitrust suit against Visa.
Pulse had accused Visa of hindering competition in the debit card network services market, thus increasing fees for merchants. Terms of the settlement were not revealed.
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