Swanson takes stand against Discover card

Jessica M. Karmasek Dec. 8, 2010, 1:00pm


MINNEAPOLIS, Minn. (Legal Newsline) - Minnesota Attorney General Lori Swanson on Monday filed a lawsuit against Discover Bank, alleging it is "deceptively charging" some credit card customers for pricey optional financial products.

The company markets those products as ways for customers to protect themselves from fraudulent or unauthorized charges. Discover, one of the nation's largest credit card companies, claims to be used in one in four households with 54 million credit cards in circulation.

"The company charged some consumers for expensive add-on financial products without their understanding that their credit cards would be charged. The irony is that the credit card company markets these products as a way for consumers to protect themselves from fraudulent or unauthorized credit card charges and financial instability in the bad economy," Swanson said in a statement.

According to the attorney general's office, in 2009, Discover earned nearly $300 million nationwide in annual revenue from the sale of these optional financial products -- an increase of more than $80 million, or more than 37 percent, from 2007. This is in addition to the revenue the bank charges customers for interest and penalty fees. In 2009, Discover reported a net income of $1.3 billion, Swanson's office said.

The lawsuit alleges that Discover Bank and its affiliated processing company made "aggressive, misleading and deceptive" telemarketing calls to sign up people for these products.

In some cases, the company has charged customers' credit cards for enrollment in these add-on products even though the consumer did not agree to purchase anything, Swanson said.

In other cases, the company tricks people into unknowingly signing up for these products, usually by inducing consumers to say "OK" or "yes" to a benign statement without understanding they are signing up and then treating that response as authorization to bill their credit cards, the attorney general's office said.

In many cases, Discover refuses to make refunds to aggrieved consumers, Swanson said.

The two most common products sold by Discover are payment protection and identity theft protection.

Other products involved in the lawsuit include wallet protection, meant to assist the consumer in reporting lost or stolen wallets, and a credit score tracker, designed to help monitor a person's credit score.

Because some of the charges show up as relatively low monthly fees on a person's credit card statement, they often "fly under the radar" and go undetected by some consumers for months, Swanson's office said.

Defendants in the lawsuit include Discover Bank, a Delaware state bank; DFS Services, LLC, its affiliated processing company; and Discover Financial Services, the parent corporation of both entities.

The suit was filed in Hennepin County District Court and seeks injunctive relief, civil penalties and restitution.

From Legal Newsline: Reach Jessica Karmasek by e-mail at jessica@legalnewsline.com.

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