Discover Financial Services slumped in late trading after the credit-card issuer disclosed it was in discussions with regulators over how it misclassified some of its cards.
The company will suspend buybacks while it initiates an internal review of compliance, risk management and corporate governance, the Riverwoods, Illinois-based company said Wednesday in a statement. Shares sank 11.4% to $108 in late trading.
Discover said starting in 2007, the firm misclassified certain credit-card accounts into its highest pricing tier, meaning merchants were charged more to accept the cards than they should have been. The company said incremental revenue resulting from this misclassification amounted to less than 1% of its cumulative interchange income, or the money it collects from merchants each time a consumer swipes a Discover card at checkout.
Discover is discussing the matter with regulators. Additionally, the firm said it received a proposed consent order from the Federal Deposit Insurance Corp. for a consumer compliance issue that does not include the classification issue. The card giant warned it could face future regulatory actions over the matter.
“We are actively enhancing our governance and oversight structures and are making significant investments in our compliance management system,” Chief Executive Officer Roger Hochschild said in the statement. “We remain deeply committed to achieving excellence in all these areas.”
