Discover Financial Services (DFS) Failed to Disclose its Deficient Risk Management and Compliance Procedures
A shareholder filed a class action on behalf of persons or entities that purchased or otherwise acquired Discover Financial Services (NYSE: DFS) common stock between February 21, 2019 and August 14, 2023. DFS is an American financial services company that owns and operates Discover Bank, an online bank that offers checking and savings accounts, personal loans, home equity loans, student loans, and credit cards.
According to the complaint, during the class period, defendants failed to disclose that DFS maintained deficient risk management and compliance procedures, such that the Company failed to comply with applicable student loan servicing standards, misclassified certain credit card accounts, overcharged customers, and failed to stem its ballooning credit card delinquency rate. Moreover, once revealed, these delinquencies would subject DFS to significant financial exposure, regulatory scrutiny, and reputational harm.
On July 20, 2022, DFS issued a press release announcing its financial results for the second quarter of 2022, wherein it disclosed that it “is suspending until further notice its existing share repurchase program because of an internal investigation relating to its student loan servicing practices and related compliance matters.”
On July 19, 2023, DFS disclosed that it had misclassified certain credit card products over an approximate 15-year period as a result of an acknowledged compliance failure. Specifically, DFS disclosed that it had incorrectly classified certain credit card accounts into its highest merchant and merchant acquirer pricing tier, beginning around mid-2007. In addition, the Company disclosed receipt of a proposed consent order from the Federal Deposit Insurance Corporation in connection with an unrelated regulatory matter. On this news, DFS’s stock price fell $19.40 per share, or 15.92%, to close at $102.45 per share on July 20, 2023.
Then, on August 14, 2023, DFS announced that defendant Roger C. Hochschild would step down as Chief Executive Officer, President, and as a member of the board of directors. That same day, in an exhibit to an SEC filing, DFS also disclosed that its credit card delinquency rate increased to 3.00% for the 24-month period ended July 31, 2023, as compared to 2.86% for the 24-month period ended June 31, 2023. On this news, DFS’s stock price fell $9.69 per share or 9.44% to close at $92.96 per share on August 15, 2023.
What Now: Similarly situated shareholders may be eligible to participate in the class action against Discover Financial Services. Shareholders who want to act as lead plaintiff for the class must file their motion for lead plaintiff by October 31, 2023. A lead plaintiff is a representative party acting on behalf of other class members in directing the litigation. You do not have to participate in the case to be eligible for a recovery. If you choose to take no action, you can remain an absent class member.
All representation is on a contingency fee basis. Shareholders pay no fees or expenses.
