“It’s a case of a credit card company playing gotcha, rather than playing fair with consumers,” Lori Swanson, the Minnesota attorney general, said in an interview. “People think their credit card company is going to prevent fraudulent charges, not make them.”

EDITOR’S COMMENT: Nothing has changed. The financial industry still thinks it can market its “products” like any snake oil salesman. If they get away with it, they are right. But here the Minnesota Attorney General is doing something about a fraudulent scheme that netted Discover nearly $300 million that we know about. It’s nothing new — just look at this case and you see the same sales model being used in all the mortgages that were securitized, auto loans, student loans etc.

And just to remind you, virtually ALL credit instruments were securitized. That is something to think about. For example if you think you are forever buried under a student loan or credit card that you can never pay off, the same securitization rules apply. If they DID transfer the documentation, which is doubtful, then you still have the issue of standing, loss mitigation payments etc.. If they didn’t document the transfer, then you have the issue of the real creditor being hopelessly obscured. Don’t be so fast to believe that that student loan is non-dischargeable in bankruptcy. A close look might show that the bank claiming non-discharge-ability has no right to claim any standing, much less exemption from discharge. If the originating bank did not take any risk, then there was nothing for the government to guarantee.

Minnesota Says Discover Cardholders Were Deceived on Financial Products


The Minnesota attorney general filed a lawsuit on Monday accusing Discover Financial Services of tricking consumers into buying optional products that would protect them from fraud and financial hardship.

The lawsuit, filed in Hennepin County District Court, contends that Discover, one of the nation’s largest credit card issuers, made “aggressive, misleading and deceptive” telemarketing calls to sign up consumers for these products, which include identity theft protection and a credit score tracker.

The complaint said cardholders were told that the company was making the calls as a courtesy, not to make a sale. Some customers were signed up for financial products — and charged on their credit cards — without their knowledge. Others were induced to say “O.K.” or “yes” to a seemingly benign statement, not knowing that they were agreeing to be charged for a Discover product, the suit said.

“It’s a case of a credit card company playing gotcha, rather than playing fair with consumers,” Lori Swanson, the Minnesota attorney general, said in an interview. “People think their credit card company is going to prevent fraudulent charges, not make them.”

The investigation was prompted by complaints from consumers in Minnesota, she said.

In a prepared statement, Discover officials said it was their policy not to comment on pending litigation. However, company officials said it was not in their interest “to sell a product that doesn’t enhance our relationship with our card members.”

“Many card members find Discover’s protection products valuable as they provide peace of mind,” the statement said. “Discover seeks to maintain long-term relationships with our card members and for that reason, we have enjoyed the highest level of customer loyalty among leading credit card brands for 13 years.”

The lawsuit appeared to have little impact on Discover’s share price, which was up 20 cents on Monday, closing at $19.04. Last year, Discover reported $1.3 billion in profit.

Identity theft protection costs $12.99 a month, and payment protection, another product in question, which allows a customer to defer credit card payments in the event of job loss or disability, costs 89 cents for every $100 in outstanding balances a month, the attorney general’s office said.

In 2009, such products generated $295 million in revenue for Discover, an 18 percent increase over the previous year, company filings said.

The lawsuit lays out a scheme in which Discover — and its affiliated processing company, DFS Services — called customers and purported to be simply checking in to make sure they understood all the benefits that came with the card. Instead, some customers would end up unwittingly enrolled in a Discover fee-based program, the suit contends.

In some instances telemarketers read consumers a “disclosure” but intentionally butchered the wording, leaving out important words, running sentences together or speed-reading the text, “all to make it incomprehensible to the consumer,” the attorney general’s office said in a statement. In other instances, telemarketers would leave out the fact that the consumer was buying something. Instead, they would emphasize parts of their script suggesting that a sale had not occurred.

That is what one customer, Bradley Sparish, 50, of Cottage Grove, Minn., said happened when Discover called him in 2009, a few months after he signed up for a Discover Card. On the call, a recording of which was obtained by the attorney general’s office and played for reporters, a telemarketer offered to send information on the payment protection plan.

But before hanging up, he sped through a “disclosure” and garbled details on pricing. At the end, Mr. Sparish asked, “I’m not automatically enrolled in this, am I?”

The telemarketer responded, “Don’t worry. All we do here today is mail everything out to you.”

In fact, Mr. Sparish was charged on his next monthly bill. He eventually got Discover to stop charging him, but he did not receive a refund.

“I pay the bill on time every month,” he said. “I’m their best clientele. I have a great credit score. And yet they do this to me.”

Ms. Swanson says her lawsuit seeks to require Discover to stop its telemarketing practices and pay penalties and restitution to consumers.

A federal lawsuit filed earlier this year in New Jersey made similar claims, accusing Discover of using “confusing and misleading sales tactics to surreptitiously enroll” card members in the payment protection plan.

David S. Paris, the lawyer for the plaintiffs in that case, said the accusations fell into two categories: customers who had been led to believe they were simply receiving information from Discover but were actually enrolled in a financial product and charged a monthly fee; and customers who had been enrolled, and charged, without being called at all.

“If one or two people called me and told me this happened to them, I might think they are irresponsible or made a mistake,” Mr. Paris said. “But I get five to 10 calls a week on this.”

6 Responses

  1. neidermeyer,

    Much thanks for your post.

  2. Yes, and “sharing of information” is standard. They had your number – and they targeted any credit card holders for mortgage refinances. RICO???-or a just a result of the repeal of Glass Steagall Act — which then allowed commercial banks to both LEND and to SECURITIZE their receivables resulting from the loans – they lent..

    Hey — they needed customers —YOU. The banks purchased visa/mastercard loans — securitized them — they sought you out for a mortgage via their wholesale mortgage lending network – -who then sells the the mortgages to the bank – who then securitized their own “owned” receivables. Remember, securitization is just a removable of receivables from balance sheet. Servicers are not acting for trust and trustee has no interest. Once loan is in default — it is no longer securitized –WHY? BECAUSE THERE IS NO LONGER ANY RECEIVABLES, THIS is the same for credit card debt – as it is for mortgage loans. Accounting 101.

    Hey – government approved all — they needed the consumption because they had converted the US economy to 70% consumption GDP.

    Banks had all your info – —knew all about you — and targeted you. They knew — they could always foreclosure — but, they got sloppy – and now try to cover up sloppiness with outright foreclosure fraud..

    It is clear non-performing loans are on major bank’s balance sheet — or collection rights sold. YOUR loan is NOT is not in a securitized trust – and trustee as no right to collect. And, there are many issues as to HOW bank acquired the loan in the first place . – and how they falsely securitized the receivables.

    Simple. The only reason we lose is because government is protecting the bank’s business – and court’s are just scratching their heads — because they do not understand..

  3. More robosigning ,, REUTERS story that devestates AHMSI ,, I also posted as a reply on a Wells/AHMSI thread … a must read … especially page4

  4. All financial products offered in the U.S. are suspect. In fact, the financial products overseas are also suspect. All these financial institutions (pretender/lenders/student loans/credit cards are all bogus. America is going to have to get rid of the credit cards all together. They are all set up to rip you off one way or the other. Besides, you will save money if you don’t use credit cards. The mega banks have to go out of business, so don’t use their financial products. Boycotting them will put them out of business. How many millions did Discovery card get from bogus fees? Millions and millions–put them out of business.

  5. On credit card ‘debt’ you have the same issue of securitization that you have in MBS and home loans. I recently reviewed all the Bank of America SEC filings on the investor section of the BOA site and found a large number of prospectus’ for bonds that will be used to fund credit cards to consumers. BOA labels its cards the MNBA cards or something to that effect.

  6. Same story happened to me too. I also thought it would be convenient and helpful to save a stamp and switch my monthly Netflix payments over to Discover. Prior to next billing, I signed up online and confirmed it a with employee at Discover but the next month I received a .50 finance late fee. I called it in to point it out but they kept on doing it for three months. It ended in an argument over the phone with the manager. Three times I had to ask show me where and how I was ever late when your employee confirmed the switch and Discover took over the payment process? It wasn’t the amount nor the principal. It was just the fact they blamed me the borrower and stole my money.

    One more quick story. I charged to Capital One $10.16 to buy a book online. I admit I was one day late in making the payment. The next month statement came in charging. $35.16. I yelled saying you can’t charge me $25 dollars for being one day late! Opening up the next letter in the mail from Capital One it read, “New policy. Any monthly charges under $25 dollars will receive a $25 dollar late fee.”
    The fraudulent designed to fail mortgage is enough. Glad I never got hooked on credit cards.

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