$250M Penalty Hits Discover Before Merger
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Two U.S. financial regulators just handed Discover Financial Services a $250 million penalty for years of misclassifying credit cards. The Federal Reserve and FDIC announced separate enforcement actions against the company, citing systemic overcharges on interchange fees dating back nearly two decades.
At the core of the findings: Discover charged commercial interchange fees—typically higher than consumer rates—for everyday consumer card transactions. Regulators say this went on from 2007 through 2023, misclassifying millions of cards and leading to over $1 billion in excess fees paid by merchants. The Fed’s order alone includes a $100 million fine, while the FDIC imposed $150 million and is requiring a $1.23 billion restitution to affected merchants.
The timing is critical. Discover is preparing to merge with Capital One in a $35 billion deal scheduled to close next month. The Fed’s approval of the merger came with conditions, including full compliance with the enforcement orders. Discover now has 60 days to submit a plan to fix its interchange oversight.
“Discover has since terminated these practices and is repaying those fees to affected customers,” the Fed said in its release. Capital One has also agreed to meet the remediation terms set out by the regulators.
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