WAUKEGAN, Ill. (CN) – Corporate executives at Discover knew the credit card company was deceptively marketing its “credit protection products” as free – then charging customers’ cards – but kept doing it anyway, a union pension fund claims in a shareholder derivative complaint.
Steamfitters Local 449 Pension Fund sued Discover Financial Services, its CEO David Nelms and 17 other corporate officers, in Lake County Court.
From 2007 to 2011, “the individual defendants, in dereliction of their oversight duties and responsibilities and otherwise in violation of their fiduciary duties, caused the company to market various fee-based credit card account add-on features to customers in a highly misleading fashion, including enrolling customers in fee-based products known as the Discover Payment Protection, Identity Theft Protection, Wallet Protection, and Credit ScoreTracker, without their consent,” as alleged in several consumer class actions and government regulatory indictments, the heavily redacted lawsuit states.
The company’s telemarketers used scripts implying that the products were free “benefits,” with no fee attached, or simply enrolled consumers without their consent and charged them on their Discover card, the shareholders say.
Discover in September 2012 agreed to pay $200 million to 3.5 million customers and pay a $14 million penalty to settle a federal probe into its marketing of its credit protection products.
The consent order states that Discover’s “misconduct continued unabated until August 2011, well after the defendants consciously disregarded problems with the Protection Products as far back as December 2007, ignored regulator concerns beginning in 2009 and became aware of the specific misconduct in April 2010 based on the class action litigation, a clear breach of the Board’s oversight duties,” according to the complaint.
Discover faces lawsuits brought by the attorneys general of Hawaii, Mississippi, and New Mexico, and 10 other class actions, and has paid millions to settle with the attorneys general of Minnesota , West Virginia, and Missouri.
“These legal and regulatory proceedings have exposed Discover to hundreds of millions of dollars in damages in addition to severely damaging Discover’s reputation and goodwill in the market,” the pension fund claims.
Nevertheless, “to date the Board has not sought to claw back compensation from the executive defendants and other members of company management that were responsible for implementation and operation of the illegal sales and marketing practices that damages the company. Therefore, plaintiff brings this action against the individual defendants to remedy the breaches of fiduciary duty by the individual defendants.”
The union seeks disgorgement of unjust profits and damages for breach of fiduciary duty, waste of corporate assets and unjust enrichment.
It is represented by William London with Freed, Kanner, London & Millen, of Bannockburn.
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