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The Federal Reserve and Federal Deposit Insurance Corporation (FDIC) have fined Discover a total of $250m for overcharging merchants on the same day its acquisition by Capital One was approved.
The agencies issued separate consent orders on Friday (April 18), with the Federal Reserve fining Discover $100m and the FDIC imposing a fine of $150m.
The Federal Reserve said it had identified “significant deficiencies” in Discover Financial Services (DFS) and Discover Network’s practices in the classification and assessment of interchange fees for Discover Bank credit cards.
Between 2007 and 2023, Discover Bank, a subsidiary of DFS, offered both “consumer” credit cards and “commercial” credit cards, which typically had higher interchange fees.
However, the Fed order said, it misclassified nearly all consumer cards as commercial ones.
In a statement, the FDIC said: “For approximately 17 years, the bank misclassified millions of consumer credit cards as commercial, resulting in higher interchange fees for transactions processed on the Discover network.”
It added: “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.”
DFS must submit a plan to strengthen its risk management procedure and internal controls related to the Discover Card Interchange Fee Practices within 60 days, the Fed order said.
It must also distribute at least $1.25bn to adversely affected customers as part of a restitution plan, the FDIC said.
In a statement to Vixio, Discover said it "has been working with regulators to resolve the card misclassification issue and today’s announcements by the Federal Reserve and FDIC highlight the significant progress we’ve made toward resolving this issue.”
Acquisition approved
Capital One’s acquisition of Discover is expected to complete on May 18, 2025, having been approved by the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency (OCC).
In a press release, Capital One founder and CEO Richard Fairbank said it was an exciting moment for the two companies.
He said: “We understand the critical importance of a strong and competitive banking system to our customers and our economy, as we appreciate the thoughtful and diligent engagement of our regulators as they thoroughly reviewed this deal over the past 14 months.”
