Discover Bank and affiliates pay $25 million CMP

The CFPB has issued a Consent Order to Discover Bank, The Student Loan Corporation, and Discover Products, Inc. ("Discover") ordering Discover to pay at least $10 million in consumer redress and a civil money penalty of $25 million, for violating a 2015 Bureau Order, the Electronic Fund Transfer Act and the Consumer Financial Protection Act of 2010. Discover Bank, headquartered in Greenwood, Delaware, is an insured depository institution that provides and services private student loans. The Student Loan Corporation and Discover Products, Inc., are affiliates of Discover Bank, and also engage in student loan servicing.

The 2015 Order:
The Bureau previously issued a consent order against Discover in July 2015 (2015 Order). The Bureau’s 2015 Order was based on the Bureau’s finding that Discover misstated the minimum amounts due on billing statements as well as tax information consumers needed to get federal income tax benefits. The Bureau also found that Discover engaged in illegal debt collection practices. The Bureau’s 2015 Order required Discover to refund $16 million to consumers, pay a penalty, and fix its unlawful practices servicing and collection practices.

Violations:
The Bureau found that Discover violated the 2015 Order’s requirements in several ways. Discover misrepresented the minimum loan payments consumers owed, the amount of interest consumers paid, and other material information, such as interest rates, payments, due dates, and the availability of rewards, among other things. Discover also did not provide all of the consumer redress the 2015 Order required.

The Bureau found that Discover engaged in unfair acts and practices by withdrawing payments from more than 17,000 consumers’ accounts without valid authorization and by cancelling or not withdrawing payments for more than 14,000 consumers without notifying them. This conduct violated the CFPA, EFTA, and Regulation E. The Bureau also found that Discover engaged in deceptive acts and practices in violation of the CFPA by misrepresenting to more than 100,000 consumers the minimum payment owed and to more than 8,000 consumers the amount of interest paid. Some consumers ended up paying more than they owed, others became late or delinquent because they could not pay the overstated amount, while others may have filed inaccurate tax returns.

The current order:
The order issued December 22, 2020, prohibits Discover from making any misrepresentations about minimum payments consumers owe, the amount of interest consumers paid, and other material servicing terms. The order also prohibits Discover from withdrawing loan payments from consumers’ bank accounts in amounts or at times not authorized by consumers. It also requires Discover to make at least $10 million in consumer redress payments and pay a $25 million civil money penalty. A link to the order can be found above.