Discover agrees to settle class action lawsuit over merchant overcharging

(Bloomberg) — Discover Financial Services, the credit card company that agreed to be acquired by Capital One Financial Corp., said it has reached an agreement to settle a class-action lawsuit over merchant overcharging.

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The bank, which admitted to the failures last year, believes the $1.2 billion it has already set aside for related liabilities will be enough to settle the matter, according to a filing on Wednesday. The agreement is subject to court approval.

The company disclosed last July that starting in 2007, it had incorrectly classified certain credit card accounts into the highest price tier, meaning merchants had to pay more than necessary to accept the cards. Riverwoods, Illinois-based Discover and the retailers affected by the misclassification reached a settlement Monday, the filing said.

The misclassification prompted Discover to suspend share buybacks last year while the company conducted an internal review and prepared for lawsuits. The company’s then-CEO, Roger Hochschild, later left the company.

Discover has faced other compliance challenges, and Capital One executives have said they are willing to pay more than originally expected to resolve them while acquiring one of the country’s coveted payment networks. The acquisition, subject to antitrust reviews and shareholder approval, is expected to close later this year or in early 2025.

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