Class Action Lawsuits Lead to FDIC Investigation

Discover announced July 1 that in addition to facing a slew of class action lawsuits, it will also face scrutiny from the FDIC over its marketing of fee-based products, including its controversial payment protection plan. 

The class action lawsuits and consequential FDIC investigation stem from Discover’s marketing practices relating to its payment protection service, which Discover markets as a way to avoid credit card payments for up to two years or one month, depending on the cardholder’s circumstances. For example, Discover cardholders can defer credit card payments for 24 months for “disaster” events such as unemployment, disability, death of a close relative, etc., or defer for one billing period for “celebration” events such as childbirth, marriage and graduation. The card balance does not accrue interest or late fees during that period.

Sounds like a great plan, right? Not according to Discover cardholders, who say they were duped into signing up for the Discover payment protection plan, which comes with a monthly fee of 89 cents per $100 of the deferred balance. Taken over a year that amounts to 10.7% of the balance, which is effectively a 10.7% interest rate on the unpaid balance.

A total of eight class action lawsuits were filed against Discover by angry cardholders, who allege Discover used deceptive marketing techniques to enroll cardholders in payment protection programs. The Discover class action lawsuits claim telephone agents used confusing and misleading sales tactics to sign up for the supposedly optional plan. Many cardholders, the class actions say, were unknowingly enrolled in the program while discussing another matter with a Discover agent, while others were enrolled without their consent at all.

The eight Discover payment protection plan class action lawsuits were consolidated into one case with the U.S. District Court in Illinois. All eight class action suits ask for unspecified damages and restitution, attorneys’ fees and costs, and various forms of injunctive relief, including an order rescinding the payment protection fee. Last month Discover reached a class action settlement with all parties that is pending judicial approval.