Dive Brief:

• Discover Financial Services has shared with regulators the findings of an internal investigation into a card pricing error at the company, CFO John Greene said Tuesday at an investor conference. Greene didn’t say when the information was provided to regulators, though he mentioned meeting with some of them Monday.
• “We as a leadership team are in active dialogue with the regulators and the merchants that were impacted by that,” Greene said during an appearance at a Barclays investor conference. “We’re awaiting feedback from both the merchants and the regulators in order to be able to put a firm stake in that remediation plan.”
• An outside law firm assisted the company with the investigation into the issue, Greene said. The error, first disclosed by the company in July, affected merchants and merchant acquirers.

Dive Insight:

Discover, which is searching for a new CEO after Roger Hochschild resigned abruptly last month, is grappling with a host of regulatory issues.

In addition to the card pricing error, Discover disclosed in July it received a proposed consent order from the Federal Deposit Insurance Corporation relating to its compliance management system. Discover also received consent orders from the Consumer Financial Protection Bureau, in 2015 and 2020, related to the company’s student loan servicing practices.

“There are, frankly, a lot of them, too many [regulatory issues],” Greene said. “Too many for our board, too many for the executive team and we’re working to be able to close these out in a way that is fully compliant.”  

Beginning in 2007, the Riverwoods, Illinois-based card company misclassified certain credit card accounts into its highest merchant and merchant acquirer price tier. The issue, discovered internally, “underscored deficiencies” in the company’s corporate governance and risk management, Hochschild said earlier this year. 

When asked Tuesday about the timing of a resolution on the card pricing issue, Greene noted the company has more control over its conversations with merchants than with regulators.

Discover executives had a meeting Monday “with a number of the regulators, and my expectation is we’re going to continue to have some dialogue,” Greene said. “And I’d be hopeful that by the end of the year, we’ll have a view, but I don’t have certainty on that.”

A company spokesperson declined to identify which regulators Greene was referring to in his remarks.

Stemming from that issue, Discover added a $365 million liability to its balance sheet for issuing refunds to merchants and merchant acquirers affected by the misclassification. The company is preparing a program to compensate those affected. 

“We’ve tried to be as transparent regarding the issue and our mistakes as we could,” Greene said. “I don’t believe there’s anything from the merchant standpoint that will change, certainly other than ensuring the card tiering is correct and transparent going forward.”

Although the company is currently relying heavily on third-party legal and consulting resources, Greene said he expects over time that will ease as Discover leans on its own employees to handle compliance and risk management.

The company has increased compliance spending since 2019 by $300 million and has hired about 200 compliance officers over the past several months, executives have said. Discover is in the “middle innings of this journey,” Greene said Tuesday.

As the company sorts out compliance issues, Discover aims to ensure it has “the right people, the right organization design, the right focus on issue identification and issue management,” Greene said. It also will be better “able to identify items and, in a transparent and timely way, get those escalated, disclosed and remediated,” he added. “That takes people, changes to process and some levels of systems investment,” he said.