- Multiple law firms said in press releases this week that they’re exploring whether Discover Financial Services violated federal securities laws after the company’s stock dropped following its disclosure that it had begun an internal probe of its student loan business.
- The law firms noted Discover’s stock price fell about 8% on July 21 in the wake of Discover’s announcement, which also said it was pausing its share repurchase program. The law firms pointed to potential harm to shareholders in their releases.
- On July 20, Riverwoods, Illinois-based Discover said as part of its second-quarter earnings report that its board appointed an “independent special committee” to conduct a probe of the company’s student loan servicing and compliance.
A Discover spokesperson declined to comment. CEO Roger Hochschild faced a flurry of questions from analysts during last week’s earnings call after the company also said it was suspending the share buyback program in light of the probe.
Law firm Block & Leviton said it’s “investigating whether [Discover] committed securities law violations and may file an action to attempt to recover losses on behalf of investors who have lost money,” per a news release.
Several other law firms issued similar releases. “Our investigation concerns whether Discover has violated the federal securities laws and/or engaged in other unlawful business practices,” stockholder rights law firm Bragar Eagel & Squire, P.C., said in a news release.
The Consumer Financial Protection Bureau issued a consent order in 2015, alleging Discover misstated minimum amounts due on billing statements for student loans, misstated tax information required for certain tax benefits and engaged in illegal debt collection. In December 2020, Discover signed another consent order with the CFPB and agreed to pay $35 million after the company violated the prior order.
Such consent orders often come with ongoing compliance monitoring. A CFPB spokesperson this week declined to comment on whether the bureau has a role in Discover’s internal investigation.
The company’s most recent 10-K filing with the Securities and Exchange Commission noted that some of its subsidiaries are subject to a consent order with the CFPB “regarding certain private student loan servicing practices.” Discover hasn’t filed a 10-Q report yet for the most recent quarter.