Discover Agrees to Settle Class-Action Suit for Overcharging Merchants

Discover Financial Services, the credit-card firm that agreed to be acquired by Capital One Financial Corp., said it reached an agreement to resolve class-action litigation for overcharging merchants.

The lender, which acknowledged the lapses last year, expects that the $1.2 billion it already set aside for related liabilities will be enough to resolve the matter, according to a regulatory filing Wednesday. The accord is subject to court approval.

The company announced last July that it misclassified certain credit-card accounts into its highest pricing tier, starting in 2007, meaning merchants were charged more than they should have been to accept the cards for payment. Riverwoods, Illinois-based Discover and retailers affected by the misclassification reached the settlement Monday, according to the filing.

The misclassification prompted Discover to suspend stock buybacks last year as it conducted an internal review and braced for claims. The firm’s chief executive officer at the time, Roger Hochschild, later left.

Discover has faced other compliance challenges, and Capital One executives have said they’re ready to pay more than initially expected to resolve them while acquiring one of the country’s coveted payments networks. The takeover, subject to antitrust reviews and shareholder approvals, is expected to be completed later this year or in early 2025.

Top photo: Capital One and Discover credit cards arranged in Germantown, New York, US, on Tuesday, Feb. 20, 2024. Capital One Financial Corp. agreed to buy Discover Financial Services in a $35 billion all-stock deal to create the largest US credit card company by loan volume, giving the combined entity a stronger foothold to compete with Wall Streets behemoths. Photographer: Angus Mordant/Bloomberg.