Complaint Review: Discovery Card - Greenwood DE

The below is taken from Class Action Lawsuit that Discovery Settled in regards to Payment Protection, Identity Theft Protection, Wallet Protection that lays out in details the details of what transpired in my report.

I. INTRODUCTION

1. Defendants DFS Services LLC and Discover Bank are referred to collectively in this complaint as “Discover” unless otherwise specified.

2. This is a class action lawsuit brought by, and on behalf of, Discover credit card customers throughout the country who were enrolled in the Defendants’ “Payment Protection

Plan,” (formerly known as “Account Guard”) (hereinafter referred to as “Payment Protection” or “DPP”), Identity Theft Protection (formerly known as “Profile Protect”) (hereinafter referred to as “Identity Theft Protection” or “ITP”), Wallet Protection (formerly known as “The Register”) (hereinafter referred to as “Wallet Protection” or “WP”) and Credit Score Tracker (hereinafter referred to as “Credit Score Tracker” or “CST”) products. (collectively referred to herein as the “Products”).

3. The proposed class representatives bring claims against Discover under state deceptive trade practices laws and the federal Truth in Lending Act, 15 U.S.C. § 1601 et seq., for claims for breach of contract and unjust enrichment, and seeking declaratory and injunctive relief. These claims arise from Discover’s deceptive marketing practices and business practices in connection with the marketing, sale, and claims practices associated with the Discover products identified in the preceding paragraph.

4. Discover is one of the nation's largest credit card issuers. Discover earns nearly $300 million in annual revenue from the sale of several optional fee-based financial products. Discover markets these add-on products as ways for consumers to protect themselves from fraudulent or unauthorized charges or to enhance their financial security against such hazards or hardships like job loss or sickness, identity theft, lost wallets, or low credit scores. Yet Discover often enrolls consumers in these products based on highly deceptive and misleading telemarketing calls, even charging some consumers for the products without the consumer’s consent or understanding that their credit card will be charged for these products. Discover is in a position to do this because, unlike a typical telemarketer, it is the consumer's credit card company and already has their credit card number and detailed confidential information about its customers.

II. PARTIES

5. Defendant DFS Services LLC is a limited liability company duly organized and existing under the laws of the State of Delaware, having a principal place of business in the State of Illinois. Because limited liability companies are deemed citizens of the State where they have their principal place of business (Illinois), the State under whose laws it is organized (Delaware), and every state of which a member is a citizen (Delaware and Illinois), Defendant DFS Services LLC is a citizen of the States of Delaware and Illinois.

6. Defendant Discover Bank is a corporation duly organized and existing under the laws of the State of Delaware, having a principal place of business in the State of Delaware.

7. At all times herein mentioned, Defendants, and each of them, were the agents, principals, employees, servants, partners, joint venturers, and representatives of each other. In doing the acts hereinafter alleged, they each were acting within the scope and course of their authority as such agents, principals, employees, servants, partners, joint venturers, and representatives, and were acting with the permission and consent of the other co-Defendants.

8. Plaintiffs are represented by proposed class representatives who purchased one or more of the identified Discover products (Payment Protection Plan, Identity Theft Protection, Wallet Protection and Credit Score Tracker). A statement of facts for each proposed class representative is set out in detail below.

III. JURISDICTION AND VENUE

9. This Court has subject matter jurisdiction pursuant to 28 U.S.C. §1331 because this action arises under the Constitution or laws of the United States and §1332(d)(2) because the matter in controversy exceeds $5,000,000, exclusive of interest and costs, this is a class action in which at least one member of the Plaintiff class is a citizen of a State different from at least one

Defendant, and the proposed Classes are composed of thousands of members throughout the United States.

10. Venue is proper before this Court pursuant to 28 U.S.C. § 1407, as this Court is the transferee court for all actions consolidated into MDL 2217 by the Judicial Panel on Multidistrict Litigation’s order creating this multidistrict litigation on February 27, 2011. Venue is also proper under 28 U.S.C. § 1391 inasmuch Defendants do business in this District, a substantial part of the events or omissions giving rise to the claims occurred within the district in which this Court sits, and a portion of the proposed class resides in it.

11. To the extent there is any contractual or other impediment to pursuit of these claims on a class action basis, Plaintiffs specifically allege, and will prove, if necessary, that any bar to class action proceedings is unconscionable, unfair and against public policy.

IV. STATEMENT OF FACTS

12. Discover markets several purportedly optional fee-based products to its Cardholders. One such product is the “Payment Protection Plan.” These products generate substantial revenue for Discover. Discover sells at least four optional financial products for a monthly fee. Discover touts all four optional fee-based plans as ways for consumers to increase their financial security, whether by protecting the customer from fraud or unauthorized charges, or insuring them against a loss of income. These products are currently called the "Payment Protection Plan," "Identity Theft Protection," "Wallet Protection," and "Credit Score Tracker" (the "Plans"). Discover charges $0.89 for every $100 of outstanding balance on the cardholder's account each month for Payment Protection; $12.99 per month for Identity Theft Protection; $2.99 per month for Wallet Protection; and $7.99 per month for Credit Score Tracker.

13. Annualized, a consumer with a $5,000 credit card balance each month would be charged $534 for the Payment Protection Plan. Furthermore, Identity Theft Protection costs $155.88 per year; Wallet Protection costs $35.88 per year; and Credit Score Tracker costs $95.88 per year. Cardholders who are enrolled in these plans do not receive a separate invoice for these monthly fees. Instead, Discover charges the fee directly to the consumer's Discover credit card each month.

a. Payment Protection - Deceptive Marketing Claims

14. The Payment Protection Plan purports to temporarily suspend the cardholder's obligation to make regular monthly payments on their Discover card in the event of certain qualifying events. The qualifying events include involuntary unemployment, disability, hospitalization or natural disasters. If a cardholder maintains an outstanding balance on their credit card experiences a qualifying event and otherwise meets the requirements of the plan's terms and conditions, they may qualify for a temporary suspension of their monthly payment obligations.

15. The Payment Protection Plan is similar to credit insurance in the sense that it purports to protect the borrower from defaulting if an unanticipated event disrupts the borrower's source of income. Unlike credit insurance, however, the debt suspension portion of Payment Protection does not actually make monthly payments as they come due each month. Instead, Payment Protection only suspends the borrower's obligation to make monthly payments temporarily.

16. These types of plans have been subject to criticism from consumer advocates on several fronts. For example, it may not be disclosed to consumers that under the terms and conditions of the plan, the cardholder may not be permitted to use their credit card while they have invoked the debt suspension benefits -- even though the qualifying events that trigger the debt suspension benefit, such as unemployment, may be when the cardholder needs their credit card the most. Under Discover's Payment Protection Plan, a cardholder cannot use the card when monthly payments are suspended due to a hardship.

17. Critics also point out that debt suspension agreements are sometimes marketed to elderly consumers, for whom material benefits of the Plan may be of little or no value. The main benefit of debt suspension plans is that they suspend payment obligations when the borrower's income stream is lost due to unemployment, disability or natural disaster; elderly retired persons rely on savings and fixed income to survive, rather than normal income from employment, so they could rarely benefit from Discover’s unemployment or disability benefits.

18. Unlike credit insurance, Payment Protection plans are generally not regulated by state insurance regulators. With credit insurance, state insurance regulators at least set basic minimum terms and conditions, and also are required to regulate premiums to insure that costs are reasonable in relation to the benefits of the product. By contrast, payment protection plans are generally unregulated as to terms, conditions, and fees, making the plans highly profitable for Discover.

19. Discover markets and sells its “Payment Protection” product (“Payment Protection”) as a product that will provide benefits to Cardholders if certain events occur, such as unemployment or disability. Discover charges the Cardholders $.89 per hundred dollars of their monthly account ending balance, and in return tells the cardholder that it will defer minimum payments on account balances for a period of time when the cardholder is unemployed or disabled. These promises are illusory.

20. Discover sells Payment Protection through misleading statements, incomplete statements and misrepresentations. The product is sold through print ads and direct telemarketing to existing Cardholders who are generally in the “subprime” credit category.

21. Discover manipulates the Payment Protection sales process by either 1) enrolling Cardholders in Payment Protection without advance notice or consent by the cardholder, or 2) misrepresenting to Cardholders that Payment Protection will “Preserve your lifestyle – and protect your Discover Card payment history – when life’s events disrupts your finances” by putting their account on hold during the benefit period.

22. At the time of sale, Discover does not ask the cardholder any qualifying questions

to determine if the cardholder is eligible for Payment Protection benefits, or to determine if the cardholder will ever be eligible for Payment Protection benefits. There is a lengthy list of exclusions or grounds for denial of benefits that are not revealed to the cardholder until the customer submits a claim for benefits, when Discover grants itself ultimate and unchallengeable discretionary power to deny benefits if it “determines that [the cardholder] do[es] not qualify for benefits for any reason.” (emphasis added). Discover fails to disclose the terms of Payment Protection until after the consumer accepts or is charged for the product.

23. The Payment Protection claims process is so difficult, onerous and discretionary that, upon information and belief—based on The Impact of Debt Cancellation Contracts on State Insurance Regulation, A Report to the FIRST By the Center for Economic Justice dated July 2003—only 3-5% of premiums paid by Cardholders are ever paid out as benefits. Cardholders who are denied benefits do not receive refunds of premiums paid. They have therefore paid Discover for a product that is entirely worthless to them. Cardholders are rarely able to overcome the multiple bureaucratic hurdles and incomprehensible and contradictory preconditions that are confusing and that were not disclosed to the cardholder at the time of sale (or imposition of charges). When Discover’s discretionary process results in the ultimate denial of claims, there is no objective process for a cardholder to appeal Discover’s decision.

24. Payment Protection is a “mass” marketed product, that is, the marketing,

management and claims handling processes are applied in a uniform manner so that all members of the proposed class were marketed in a virtually identical manner and members of the class received standardized responses from Discover in response to claims for benefits.

25. Discover’s sales materials tell Cardholders that they will give Cardholders “the time [they] need to get back on your feet” because “[t]here are no payments, no periodic finance charges, no late fees, no over limit fees, and no Payment Protection fees” when a triggering event, such as unemployment or disability occurs. Discover, in its marketing material, tells Cardholders that, should the need arise, “One call puts Payment Protection to work...When you need us, simply call... and a thoughtful, knowledgeable Payment Protection specialist will take the time to activate your benefits.” Discover’s statements are misleading because thousands of Cardholders had a similar experience to the Plaintiffs here, such as Devavani Conroy, a woman who lost her job and asked for benefit payments or coverage under the Program, and who was not given “time to get back on [her] feet”, but instead was denied “Payment Protection” coverage despite having paid for it.

26. In order to increase profits, Discover manipulates the claims payment process in its favor by limiting the chances of having to honor or pay Payment Protection claims. Discover relies upon a deceptive practice known as “post claims underwriting” to accomplish this strategy. This is the practice of asking few or no questions of the cardholder at the time of sale to determine if the customer is likely to qualify for benefits should the need arise. When the customer attempts to use the “benefits” of Payment Protection, Discover denies the benefits for reasons that were not disclosed at the time of sale. For example, numerous retired senior citizens are charged for Payment Protection even though they are excluded from ever receiving unemployment benefits. 27. As a result of Discover’s deceptive and unfair marketing schemes and claims practices, Plaintiffs and class members purchase a product that is virtually worthless to them, and are charged excessively for the product even if one assumes that product has some value to the cardholder. The ratio of premiums charged is excessive when compared to the actual value of claims paid.

b. Defendants’ False Advertising Relating to Pricing of the Plan

28. The marketing materials and telephonic solicitations offering the Plan mislead consumers to believe that the fee associated with the Plan is assessed as “89¢ per every $100.00 of your total Discover Card account balance at the end of each monthly billing period in which you're enrolled in Payment Protection.” In reality, the fee is not incremental – as suggested by Discover’s marketing materials – but a percentage fee of 0.89% of their monthly ending balance.

29. Thus, according to the information presented through the marketing of the plan, if a Card Member’s total account balance at the end of a billing period in which he/she is enrolled in the Plan is $100.00, Discover may contractually charge a fee of 89¢.

30. Such marketing and advertising lead Card Members to believe that if their total Discover Card account balance at the end of a billing period in which he/she is enrolled in the Plan reached the next $100.00 increment, i.e., $200.00; Discover may contractually charge a fee of $1.78.

31. Such marketing and advertising further lead the Card Members to believe that if their total Discover® Card account balance at the end of a billing period in which he/she is enrolled in the Plan is $110.00 (i.e., more than $100.00, but less than the next $100.00 increment of $200.00), Discover may only contractually charge a fee of 89¢ because the next $100.00 increment has not yet been reached.

32. In contrast with the misinformation provided through the marketing and

advertising of the Plan, Defendants actually charge .0089 of the Card Member’s total Discover card account balance at the end of each a billing period in which the Card Member is enrolled in the Plan.

33. Therefore, when a Card Member carries a balance of $110.00 on the statement closing date while he/she is enrolled in the Plan, Defendants’ charges a fee of 97.9¢ (i.e., .0089 x $110.00), as opposed to the 89¢ as advertised.

34. Additionally, the Plan creates an “endless cycle” whereby the resulting fees are exacerbated and compounded as a result of the interest that accrues when Card Members do not pay their account balances off in full.

35. Furthermore, the fees associated with the Plan cause many Card Members to exceed their credit limits, resulting in additional excessive fees and penalties.

c. Payment Protection - Slamming Claims

36. Discover enrolls far more Cardholders through telemarketing than through the mail or online, the latter two of which require an affirmative act by the consumer to enroll, such as initialing their monthly statement in the designated place, authorizing enrollment, and mailing it back to Discover.

37. Most of Discover's Cardholders are enrolled in the Products through Discover's aggressive and deceptive telemarketing efforts and card activation calls. Some of these calls are made internally by Discover, and others are made by telemarketing firms that Discover hires.

38. In addition to Discover's financial motive to enroll as many of its customers as possible into its highly lucrative fee-based products, individual Discover telemarketers are incentivized to enroll as many Cardholders as possible, either because their compensation is commission-based or because their performance is otherwise compensated on the number of Cardholders they enroll.

39. Discover's telemarketing scripts attempt to lull the cardholder into believing they are receiving a courtesy call from Discover rather than a sales call. Discover telemarketers are instructed to tell family members who answer the phone that it is just a "courtesy call" rather than disclose that it is in fact a sales call.

40. After reading product descriptions and disclosures, if the telemarketer can elicit some affirmative response from the cardholder, such as “ok” or “'yes” after the “disclosure,” the telemarketer treats the affirmative response as the cardholder's agreement to enroll in the plan, regardless of whether the consumer understands that they are supposedly agreeing to purchase a product and that their credit card will be charged.

41. Discover's telemarketers employ numerous deceptive tactics to elicit an affirmative response from the cardholder without the cardholder actually understanding that they are supposedly agreeing to purchase an optional product for a monthly fee, thereby tricking some consumers into unknowingly signing up for the plans. One common tactic is for the telemarketer to selectively read, or substantially alter the text of the “disclosure” in an effort to make the “disclosure” sound like incomprehensible legalese and to hide the fact that a sale is taking place. In a traditional telemarketing call, the consumer must read their credit card number to the telemarketer in order to purchase a product. Here the telemarketer is the credit card company. As a result, Discover can post charges on a consumers' account even when there has been no clear and knowing consent given by the consumer.

42. Some of Discover's telemarketers read the script so quickly that Cardholders cannot understand the text or do not understand they are allegedly being sold a product. The telemarketer then says to the cardholder “Ok, Ms. Smith?” as if the telemarketer is wrapping up the call. Some Cardholders reflexively respond “Ok,” not to indicate their consent to purchase a product but to end the phone call, which they still believe is a courtesy call regarding the benefits of the Discover card. Discover later relies on this “affirmative response” as “proof” that the cardholder knowingly agreed to purchase the plan.

43. In addition to deceptively inducing Cardholders to say “yes” or “ok” during the call, Discover enrolls some Cardholders who did not give an affirmative response.

44. Sometimes the telemarketer's deceptive tactics fail and the cardholder tells the telemarketer he or she is not interested. Undeterred, Discover's telemarketers sometimes assure these Cardholders that Discover is simply going to send the cardholder a "packet of information" about the plan. When these skeptical Cardholders state that it is “ok” for Discover to send them information about the plan to look over, the telemarketer treats this affirmative response as the cardholder's authorization for paid enrollment, even though the consumers do not believe they have agreed to purchase anything.

45. When Cardholders later contact Discover to complain that they have been enrolled without their authorization, Discover purports to review the partial recordings of their conversations with the telemarketers. Discover sometimes concludes that the cardholder gave their authorization, even when the cardholder never actually states that he or she agrees to be enrolled in the paid plan. Discover routinely refuses to reimburse Cardholders the amounts that have been billed to their Discover card for the plan, even when Cardholders are adamant that they only gave approval to have information about the plan sent to them, not for enrollment.

46. Cardholders who receive the packet sometimes disregard it because they may assume that the packet is just another piece of junk mail from a credit card company. In addition to its deceptive outbound telemarketing practices, Discover enrolls some Cardholders in the plans without their knowledge during the card activation process. When a new Discover cardholder receives their credit card in the mail, the card has not been activated. Instead, the cardholder must call Discover from their home phone number to activate their card. Discover may also issue new cards to existing Cardholders which require the cardholder to call in order to activate.

47. Discover routinely transfers card holders calling to activate their card to a live operator. At some point during these activation calls, the Discover representative turns on a recording device and says to the consumer “I need to record your enrollment.” The representative then reads to the cardholder one of the “disclosures” like those discussed above. Cardholders who are calling to activate a credit card are particularly susceptible to believing that the “disclosure” is some legal text that must be read to the cardholder, rather than an alleged contractual agreement to purchase an optional paid product. Given all the disclosures and fine print that consumers receive when they open a new credit card account, reading the disclosure to Cardholders in the card activation context can mislead Cardholders about the purpose of the disclosure. Accordingly, many Cardholders who receive the disclosure during the card activation process and reply “ok” have no idea that they have supposedly purchased some optional product.

48. Discover experiences high cancellation rates for these products, from which it may be inferred that the customers did not agree to buy the products at the time of sale.

49. Many Cardholders have no idea they are enrolled in a plan and do not notice or appreciate the meaning of the line-item charge for the plan that Discover bills to their Discover account each month. Some Cardholders pay this inconspicuous charge month after month for many months before they become aware of the purpose of the charge.

d. Identity Theft Protection, Credit Score Tracker and Wallet Protection - Deceptive Marketing Claims

50. Discover also deceptively enrolls its customers in the Credit Score Tracker, Identity Theft Protection, and Wallet Protection products. With Discover's Credit Score Tracker, the cardholder is given a copy of their Experian credit report. (Experian is one of the three major credit reporting agencies.) In addition, enrollees are given access to tools that allow them to track their credit score on a daily basis and to receive e-mail alerts if there are changes to their credit score. A main selling point Discover uses to market this plan is the Experian credit report consumers receive. Discover charges enrollees an additional $19.99 (in addition to the monthly fee) if they want credit reports from the other major credit reporting agencies. Experian and the two other major credit reporting agencies, however, are required by federal law to provide consumers one free credit report each year. Discover charges the Cardholders’ accounts $7.99 per month for this product.

51. Discover's Identity Theft Protection plan purports to monitor the enrollee's credit score for indicia of identity theft and will alert the enrollee if something suspicious happens to their credit score. Discover enrolls its customers into this plan without their knowledge or consent and fails to withdraw customers from the plan upon request in order to continue billing them for the product. Discover charges the Cardholders’ accounts $12.99 per month for this product. This product was previously called “Profile Protect.”

52. Under Discover's Wallet Protection plan, if the enrollee's wallet is lost or stolen, Discover will contact the issuers of the enrollee's credit cards to cancel the card. In addition, Discover represents that it will monitor a customer’s credit for 90 days after their wallet is lost or stolen and wire the customer up to $1,000 in emergency cash. Discover enrolls Cardholders in this plan without their meaningful, knowing authorization and charges the Cardholders’ credit cards $2.99 per month. This product was previously called “The Register.”

53. Discover employs aggressive and deceptive telemarketing, as alleged in the preceding paragraphs of this complaint, with respect to each of these Products, and enrolls customers in these Products without their affirmative consent.