Discover Bank, a Greenwood, Delaware-based institution, has entered into an Amended and Restated Consent Order with the Federal Deposit Insurance Corporation (FDIC) issued on April 16, 2025. The enforcement action stems from findings by the FDIC and the Consumer Financial Protection Bureau (CFPB) revealing unsafe and unsound banking practices and violations of federal consumer protection laws, resulting in significant financial harm to merchants and intermediaries.
The FDIC identified that Discover Bank recklessly engaged in unsafe banking practices by failing to maintain an effective compliance management system (CMS). This included deficient oversight by the Board of Directors, inadequate risk management, failure in policy implementation, and insufficient monitoring to prevent violations of consumer protection laws including Section 5 of the Federal Trade Commission Act.
Critically, Discover Bank unlawfully classified certain credit card accounts into the highest interchange fee tiers on the Discover Network, leading to overcharges to merchants and merchant acquirers. This unfair practice violated the Truth-in-Lending Act and other federal statutes.
The Bank has been ordered to provide full restitution of at least $1.225 billion to affected merchants and intermediaries. This restitution amount corresponds to the liability recorded on the Bank’s books as of December 31, 2024, related to the overcharging scheme.
In addition, the FDIC assessed a civil money penalty (CMP) of $150 million due to the gravity of the violations, the risks posed, and the history of compliance issues. The Bank has agreed not to seek indemnification for this penalty.
The Consent Order mandates robust governance reforms including: - Enhanced Board oversight of the compliance management system, enterprise risk management, and consumer compliance programs. - Implementation of comprehensive policies for account classification and vendor risk management. - Appointment of compliance officers with necessary resources and authority. - Regular reporting and independent audit reviews to ensure adherence to consumer protection laws. - Establishment of a Governance and Control Committee comprising independent directors to monitor corrective actions and regulatory compliance.
Discover Bank is required to submit multiple action plans for approval by FDIC, including an Account Classification Assessment and a detailed Restitution Plan within strict deadlines. Quarterly progress reports documenting compliance efforts must be submitted to the FDIC, ensuring transparent oversight.
Discover’s recent earnings calls emphasized digital payment innovation and merchant relationship expansion. However, this Consent Order highlights critical compliance shortcomings that contrast with touted operational strengths. The substantial financial impact and the regulatory scrutiny underscore the necessity for Discover to align growth initiatives with stringent regulatory compliance, a point that management has acknowledged in prior discussions on risk management enhancements.
This FDIC Order reflects a rigorous regulatory stance on consumer protection and compliance in the banking sector, with Discover Bank exemplifying the risks tied to inadequate controls. The mandated \(1.225 billion restitution and \)150 million penalty rank as one of the most significant enforcement actions affecting credit card issuers recently. Investors and stakeholders should monitor Discover Bank’s implementation of corrective measures closely, as successful remediation will be key to restoring trust and mitigating further regulatory actions.
For full details, view the official FDIC Exhibit 99.1 report here: FDIC Order on Discover Bank.
Tags: FDIC Enforcements, Discover Bank Compliance, Credit Card Fees Litigation, Consumer Protection Laws, Banking Risk Management