- The Federal Deposit Insurance Corporation issued Discover Financial Services a final consent order in connection with a consumer compliance probe at the card issuer’s subsidiary, Discover Bank, the company said Friday.
- The consent agreement, issued Sept. 25, addresses “shortcomings” in the bank’s compliance management system for consumer protection laws, Discover said in a Friday filing with the Securities and Exchange Commission.
- In connection with the consent order, which doesn’t include any fines, Discover Bank will “improve its consumer compliance management system and enhance related corporate governance and enterprise risk management practices, and increase the level of Board oversight over such matters,” the company said in the filing.
In July, Riverwoods, Illinois-based Discover said it had received a proposed consent order from the FDIC relating to the company’s compliance management system.
The FDIC’s examination during a period of time in 2021 determined Discover Bank engaged in “unsafe or unsound banking practices,” in part by failing to establish a compliance management system to meet consumer protection laws, according to the agreement. The federal agency also noted violations of the Federal Trade Commission Act, the Truth-in-Lending Act, the Servicemembers Civil Relief Act and the Electronic Records and Signatures in Commerce Act.
In consenting to the order, Discover didn’t admit or deny the FDIC’s charges, the agency noted. The FDIC outlined a host of actions Discover must take to bolster compliance and risk management efforts by various deadlines, along with regular progress reports.
“Discover Bank has been taking significant steps to strengthen the organization’s compliance management system and address the other issues identified in the consent order,” the company said in Friday’s filing. “Management and the Board are committed to ensuring that all of the requirements of the consent order are met.”
In August, one month after the company disclosed the FDIC probe, former Discover CEO Roger Hochschild left his post, and board member John Owen was named interim CEO.
At that time, the company also added J. Michael Shepherd, an attorney and former BancWest CEO, to the board. In September, the company expanded its board to add former FDIC regional director Kathy “Moe” Lonowski to its board and the board of Discover Bank.
Owen said in August that upon receipt of the final consent order, Discover management planned to formulate action plans based on its outcomes, with the intention of “getting those things resolved as quickly as possible.”
The company has increased its risk and compliance expenses by about $300 million from 2019 to 2023, Discover CFO John Greene has said. Discover has also hired about 200 compliance officers over the past several months, Owen said in August.
Also in July, the company also disclosed a separate card pricing error that affected merchants and merchant acquirers. Last month, Greene said the company had shared with regulators the findings of an internal investigation into the card pricing error.
The company noted in Friday’s filing that more regulatory developments may occur related to that issue.
“As regulatory review of the card product misclassification matter is ongoing, additional enforcement actions or other supervisory activity from the FDIC and other regulatory agencies remain possible,” Discover said in the filing.