State of Minnesota
More about
Attorney General
Lori Swanson


Minnesota Attorney General's Office

1400 Bremer Tower
445 Minnesota Street
St. Paul, MN 55101

(651) 296-3353
(800) 657-3787

M - F 8 am - 5 pm

TTY:(651) 297-7206
TTY:(800) 366-4812

Press Release

December 6, 2010

ATTORNEY GENERAL LORI SWANSON FILES SUIT AGAINST DISCOVER BANK
Lawsuit Alleges That Credit Card Company Deceptively Charged Customers For Pricey Financial Products Marketed As A Way For People To Protect Themselves From Fraudulent Charges and Financial Instability

Minnesota Attorney General Lori Swanson today filed a lawsuit against Discover Bank for deceptively charging some credit card customers for pricey optional financial products that the company markets as a way for people to protect themselves from fraudulent or unauthorized charges and to enhance their financial security in the bad economy. Discover, one of the nation’s largest credit card companies, claims to be in one out of 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,” said Attorney General Swanson.

Nationwide, in 2009 Discover earned nearly $300 million in annual revenue from the sale of these optional financial products, an increase of over $80 million, or over 37 percent, from 2007. This is in addition to the revenue the bank charges customers for interest and penalty fees (e.g. late fees, over-the-limit fees, etc.) In 2009, Discover reported net income of $1.3 billion.

The lawsuit alleges that Discover Bank and its affiliated processing company made aggressive, misleading, and deceptive telemarketing calls to sign people up for these products. The company first lures the consumer into believing the call is a courtesy call from their credit card company and not a sales call—that is, that the caller is simply touching base to make sure the customer is aware of all the benefits of the card. In some cases, the company has charged people’s credit cards for enrollment in these add-on products even though the consumer did not agree to purchase anything. 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. In many cases, Discover refuses to make refunds to aggrieved consumers.

A typical telemarketer generally cannot sign up a customer for a product or service unless the customer gives out their credit card number or other form of payment. Unlike a typical telemarketer, Discover is the consumer’s credit card company and already has their credit card number. This enables the company to charge consumers for extra financial products by making deceptive telemarketing calls in which some consumers did not give knowing consent to purchase the paid products.

As noted above, some consumers were tricked into unwittingly signing up by giving an affirmative response like “ok” or “yes” to a seemingly benign statement or question even though the consumer has no actual understanding that they are supposedly agreeing to purchase a paid product to be billed to their credit card. For example, in some cases telemarketers read the consumer a purported “disclosure” in which they butcher or alter the text, leave out key words, run sentences together, pause when there is no period, or speed read the text, all to make it incomprehensible to the consumer. In other cases, telemarketers leave out key terms like the fact the consumer is purchasing something or the price, and instead emphasize portions of the script that do not suggest a sale is taking place, like the company’s customer service number. In other cases, the company leads customers to believe they are simply authorizing the company to send them materials in the mail to look over, with no agreement to purchase a product or have their credit card billed.

Discover markets these financial products as a way of giving people more financial security in the bad economy. Two of the most common products sold by Discover are: (1) Payment Protection, marketed as a way for the customer to defer payment of their credit card bill in the event of certain hardships like job loss or disability. This plan costs $0.89 for every $100 of outstanding balance each month, or $534 per year on a $5,000 balance; and (2) Identity Theft Protection, marketed as assistance in monitoring the customers’ accounts for fraud and unauthorized charges. This plan costs $12.99 per month or approximately $160 per year. Other products involved in the lawsuit include Wallet Protection, marketed as helping the consumer report lost or stolen wallets, and Credit ScoreTracker, marketed as assistance in monitoring 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 can “fly under the radar” and go undetected by some consumers for months. Some people have paid hundreds of dollars before detecting the unauthorized charges. For these consumers, the company reaps a double-windfall because it profits from the sale of a product that the consumers didn’t know they had and therefore won’t use.

Discover’s “Payment Protection Plan” is a so-called “debt suspension” plan in which the cardholder is temporarily relieved from the obligation to make monthly payments in the event of certain hardships, like job loss, disability, hospitalization, or death of a close family member. Some consumer advocates have criticized debt suspension or forbearance plans as being unreasonably expensive in relation to the benefits provided. For example, a consumer may have limited use of the credit card if monthly payments are suspended due to hardship; however, it is when a consumer is without income due to unemployment or disability that they may need to use their credit card. In addition, debt suspension plans may be marketed to elderly consumers who are unlikely to need the plan’s benefits because they retired and won’t face job loss and whose fixed income is unlikely to go down in the event of disability or hospitalization.

The Attorney General’s Office noted that it is particularly ironic for a credit card company like Discover to charge people’s accounts for optional fee-based products without their informed consent because the credit card company touts its fraud prevention capabilities in protecting consumers from unauthorized charges. For example, in its 2009 Annual Report, Discover writes, “We actively monitor customer accounts to prevent, detect, investigate and resolve fraud.”

“People expect their credit card company to help them avoid fraudulent charges, not make them,” said Attorney General Swanson.

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

The Attorney General’s Office today issued a Consumer Alert entitled “Check Your Credit Card Statements Carefully,” and Attorney General Swanson gave these tips to consumers:

  • “Telemarketers for your credit card company wield more power than typical telemarketers because they can directly charge your account, so be especially wary if these telemarketers ask for permission to send you materials in the mail to look over,” said Attorney General Swanson.
  • Carefully review all charges posted to your credit card statement each month. Optional fee-based products sold by your credit card company may appear as relatively small monthly charges that are designed to “fly under the radar” and go undetected.
  • If you find an unauthorized or questionable charge on your credit card statement, dispute it immediately in writing with both your credit card company and the vendor that posted the charge.

Individuals who wish to file a consumer complaint may contact the Minnesota Attorney General's Office by calling 1-800-657-3787 or 651-296-3353. Consumers may also download a Complaint Form from by clicking here and mail the completed form to the Attorney General's Office at: 1400 Bremer Tower, 445 Minnesota Street, St. Paul, MN 55101-2131.

-30-