Discover Financial Services (NYSE:DFS) has been hit with a class action lawsuit by Bragar Eagel & Squire, P.C. The lawsuit, filed on September 1, 2023, alleges fiduciary duty breaches, deficient risk management, and breach of applicable student loan servicing standards between February 21, 2019, and August 14, 2023.
This legal action follows a series of troubling events for DFS. On August 14, 2023, the company announced the immediate resignation of CEO Roger C. Hochschild after the credit card delinquency rate rose to 3.00%. The Board assured investors of efforts to enhance compliance and risk management in the wake of this announcement.
Prior to this, on July 19, 2023, DFS admitted to overcharging customers due to misclassification of credit card accounts into its highest merchant pricing tier over a span of 15 years. This admission led to a proposed consent order from the Federal Deposit Insurance Corporation (FDIC). The next day, DFS's stock price fell by $19.40 per share or 15.92%, closing at $102.45 per share.
Earlier in July 2022, DFS had suspended its share repurchase program due to an internal investigation into student loan servicing practices. This decision resulted in a stock price drop of $9.80 per share or 8.93%, closing at $100 per share on July 21, 2022.
If the allegations in the class action lawsuit are proven and become public knowledge, DFS could potentially face regulatory scrutiny, substantial financial penalties, and severe damage to its reputation.
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