Discover Financial Services (DFS) has reportedly spent $220,000 in advocacy costs, unchanged from the prior-year quarter but 58% lower than the prior quarter.
The Riverwoods, Illinois based company lobbied the federal government on issues such as credit card lending and financial regulatory reform. The Credit Card Accountability, Responsibility and Disclosure Act of 2009, known as the CARD Act, was passed by the United States Congress on May 22, 2009.The Act includes several provisions aimed at regulating the fees levied on customers by credit card companies.
The Act required Discover Financial to make fundamental changes to many of its current business practices, including marketing, underwriting, pricing and billing. The CARD Act’s restrictions on finance charges and fees would result in a reduced interest income and loan fee income for the company. This is expected to put continuous downward pressure on the yield in the U.S. Card segment with the implementation of the CARD Act.
Besides this, Discover Financial also lobbied on the Restoring American Financial Stability Act of 2010, approved by the Senate on May 20, 2010, which deals with interchange fees. Interchange fees are fees that card issuers charge the merchants for using the card.
As opposed to other fees such as late fee or ATM fee, the interchange fee is undisclosed and forms a major component of card issuer’s revenues. Most of the times, the customer using the card would not even know that he is paying the interchange fee. In 2008 alone, revenues from interchange fees netted over $48 billion — more than twice that was paid in credit card late fees, and three times the ATM fees.
Total interchange fee revenues have tripled since 2001. However, attractive interchange fees have led to reckless lending practices among the card companies in hope of maximizing fee income. In order to curb this unhealthy practice, the Act has been passed to set interchange rates that are reasonable and appropriate. Credit card issuers are opposed to the amendment as they will not be able to make up the revenue on reduced interchange fees.
Discover Financial has also lobbied on the bank tax proposed by President Obama, which would impose a tax of 0.15% on financial institutions with assets more than $50 billion.
During March, Discover Financial reported its first quarter loss of 22 cents per share. For the second quarter management said that the earnings will shrink by 13 cents per share as the company repaid $1.2 billion of Troubled Asset Relief Program money it received last year.
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