Discover Bank has been ordered to return more than $1.2 billion to merchants after a regulatory investigation found that it had systematically misclassified millions of consumer credit cards as commercial accounts, leading to inflated interchange fees over a 17-year period.
In a joint enforcement action, the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve levied a combined $250 million in civil penalties against Discover Financial Services and its subsidiaries.
Higher Commercial Interchange Rates
According to the FDIC, Discover misapplied higher commercial interchange rates to transactions made using consumer credit cards between 2007 and 2023.
The misclassification affected as many as 5 million cards, with federal regulators estimating that 98% of cards designated as commercial at the end of 2022 were, in fact, consumer cards.
Interchange fees — often referred to as “swipe fees” in the US — are paid by merchants to card issuers for each transaction and are typically higher for commercial card products.
The misclassification resulted in merchants being overcharged by more than $1.2 billion.
Discover has agreed to make full restitution to affected merchants and merchant acquirers and has since ceased the practice.
The company had previously agreed in July 2023 to a $1.2 billion settlement related to a class action lawsuit on the same issue.
Civil Money Penalty
In addition to ordering restitution, the FDIC imposed a $150 million civil money penalty on Discover Bank, while the Federal Reserve levied a further $100 million fine on Discover Financial Services and its subsidiary DFS Services LLC.
Both agencies have issued consent orders mandating reforms in Discover’s card classification and fee oversight practices.
Within 60 days, Discover must submit a comprehensive plan to enhance its governance and compliance around interchange fees, the Fed said.
The timing of the enforcement action is notable, as the Federal Reserve and the Office of the Comptroller of the Currency have also just granted conditional approval for Capital One’s $35 billion acquisition of Discover.
The Fed made clear that Capital One, which expects to finalise the deal by 18 May, will be required to fulfil all remediation commitments associated with the misclassification case.
Discover has pledged to cooperate fully with the regulators and reiterated its commitment to repaying affected merchants.
In a joint statement, Capital One and Discover said the ruling reflects “significant progress” in resolving the issue and finalising restitution.
This case represents one of the largest interchange-related enforcement actions in recent history and underscores growing regulatory scrutiny over transparency in card network fee structures — a space already under pressure from merchants and lawmakers alike.
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