In a brazen scheme that spanned nearly two decades, Discover Bank, based in Greenwood, Delaware, has been caught misclassifying millions of consumer credit cards as commercial, raking in a staggering $1.225 billion in excess interchange fees from unsuspecting merchants.
According to the Federal Deposit Insurance Corporation (FDIC), the bank’s heinous scheme, which began around 2008, resulted in merchants being overcharged by at least $1 billion in interchange fees when processing payments with the misclassified credit cards.
The FDIC issued a scathing Amended and Restated Consent Order, requiring Discover Bank to take corrective action, as well as an Order for Restitution, demanding that the bank develop a plan to redistribute at least $1.225 billion to the affected merchants and intermediaries.
In a further slap to the bank’s wrists, the FDIC also imposed a $150 million civil money penalty via an Order to Pay.
In a concurrent action, the Federal Reserve Board of Governors issued a separate order, requiring Discover Financial Services, the bank’s parent holding company, to take corrective action and pay a $100 million civil money penalty.
The FDIC’s investigation revealed that the bank’s blatant misclassification of consumer credit cards as commercial enabled it to collect higher interchange fees from merchants, ultimately lining its own pockets with an estimated $1.225 billion in illicit profits.
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Key Facts
- Agency: FDIC
- Category: Fraud & Financial Crimes
- Source: Official Source â†â€â€ÂÂ
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