Discover Required To Pay $1.2B For Overcharging Merchants: FDIC

RIVERWOODS, IL — As its proposed merger with Capital One moves forward, Discover Bank has been required to pay at least $1.225 billion in restitutions for misclassifying credit cards. The Federal Deposit Insurance Corporation announced last week the issuance of three orders against the Riverwoods-based company.

The FDIC determined that:

• For approximately 17 years, Discover Bank misclassified millions of consumer credit cards as commercial, resulting in higher interchange fees for transactions processed on the Discover network.
• As a result of the Bank's misclassification, merchants were overcharged over $1 billion in interchange fees when accepting payments with the misclassified credit cards.

In addition, the Board of Governors of the Federal Reserve System issued an order requiring corrective action and assessing a civil money penalty of $100 million against the Bank's parent holding company, Discover Financial Services and its subsidiary, DFS Services LLC.

As reported by Reuters last Friday, U.S. banking regulators approved Capital One's $35.3 billion purchase of Discover Financial Services, "paving the way for the combined firms to become the nation's eighth-largest bank."