NEW YORK — The Federal Deposit Insurance Corp. plans to issue an enforcement action against Discover Financial Services over the credit-card lender's marketing of fee-based products, the company said in a regulatory filing Wednesday after market close.
Discover, which lends to consumers and processes transactions, previously disclosed that the FDIC was reviewing its marketing of fee products, including payment protection plans, in a filing in July.
"We made changes to our products and program well before the investigation began and believe our current practices address recent FDIC concerns," Discover said in a statement Wednesday. "While disappointed by their decision, Discover has cooperated fully with the FDIC and we look forward to putting the matter behind us."
A spokesman for the FDIC didn't immediately respond to inquiries.
Discover's payment protection plan, also known as debt deferment, costs cardholders a fee of 89 cents per $100 in balance, allowing them to put monthly payments on hold in the event of job loss, hospitalization or other serious event.
Discover made $234.2 million in income from debt deferment and cancellation products in fiscal 2010, according to a regulatory filing.
The company currently faces eight class action U.S. District Court cases stemming from its payment protection product, Discover said in its filing Wednesday. Discover entered a preliminary global settlement of all pending class action cases in June, it said.
Most credit-card issuers offer payment protection products. U.S. consumers paid $2.4 billion in fees for such plans on 24 million accounts in 2009, according to a March report from the Government Accountability Office. The GAO report was based on data from nine credit-card issuers.
"The products can protect a cardholder's credit rating in times of financial distress" but "can be difficult for consumers to understand," the GAO said.
Discover's shares closed down 3.9% at $23.88 Wednesday.
