Discover Financial Services (NYSE:DFS) has been hit with a class-action lawsuit from investors, accusing the company of making materially false and misleading statements about its business, operations, and compliance policies. The suit, filed in U.S. District Court for the Northern District of Illinois, was announced by Pomerantz, the law firm representing investors, on Friday.
The lawsuit comes after Discover executives admitted in a business call last month that the company had underinvested in compliance. CFO John Greene stated during the call that the company is ensuring it doesn't "put profits before compliance excellence" and will not "underinvest going forward".
The lawsuit alleges that Discover failed to comply with applicable student loan servicing standards, misclassified certain credit card accounts, overcharged customers, and did not manage its escalating credit card delinquency rate effectively. It also points out that these deficiencies led to significant financial exposure, regulatory scrutiny, and reputational harm for the company.
On August 14, amid these regulatory troubles, Discover announced that CEO Roger Hochschild would step down immediately. John Owen replaced him on an interim basis. The suit claims that these issues led to stock price drops that harmed investors.
Prior to this, on July 19, 2023, Discover disclosed a compliance failure where it had misclassified certain credit card products over an approximate 15-year period. This misclassification began around mid-2007 and placed certain credit card accounts into its highest merchant and merchant acquirer pricing tier. The company also disclosed receipt of a proposed consent order from the Federal Deposit Insurance Corporation in connection with an unrelated regulatory matter. This news resulted in DFS's stock price falling $19.40 per share or 15.92% to close at $102.45 per share on July 20, 2023.
Moreover, on July 20, 2022, Discover issued a press release announcing its Q2 2022 financial results and suspending its existing share repurchase program due to an internal investigation relating to its student loan servicing practices and related compliance matters.
Investors who wish to act as lead plaintiff for the class must file their motion by October 31, 2023. The suit demands Discover pay damages and other fees to the class. Discover has yet to respond to a request for comment.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.