MINNEAPOLIS (CN) – Discover Financial Services makes millions from “highly deceptive and misleading telemarketing” that enrolls people in expensive “protection” plans from which they never will benefit because they do not know they signed up, Attorney General Lori Swanson claims in Hennepin County Court. “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,” the attorney general says.
Swanson says the credit card giant “earns nearly $300 million in annual revenue from the sale of several optional fee-based financial products, an increase of over $80 million, or more than 37 percent, from just two year ago.”
Discover pushes its four plans “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,” Swanson says in the 25-page complaint. “Yet Discover often enrolls consumers in these products based on highly deceptive and misleading telemarketing calls, charging some consumers without their meaningful consent or understanding that their credit cards 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.”
Fees for enrollment run from $0.89 per $100 balance to $12.99 per month.
“During a recent two-year period, Discover enrolled tens of thousands of Minnesotans and charged them millions of dollars for enrollment in the plans,” Swanson says.
Discover’s telemarketers – through a purported “courtesy call” – give its customers’ the impression that the plans are a “regular feature” or an added benefit of the card, then deceptively claim that the sales call was a “disclosure,” Swanson says.
“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,” the state says.
Often telemarketers read the disclosure quickly, make odd pauses, “butcher” the text or skip over important terms – “such as the word enrollment” – in order to confuse the cardholder, Swanson says.
Discover’s telemarketers – who are “incentivized” to enroll a large number of cardholders – “take advantage of this confusion by acting as if they regret having to read legal mumbo-jumbo to the cardholder, but that it is required for some unknown legal reason,” according to the complaint.
Swanson says telemarketers also enroll customers who do not give an affirmative response during the call, or who simply agree to receive an information packet about a plan. Discover also enrolls cardholders in plans without their consent during the card activation process, using similar tactics, the state says.
“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,” the attorney general says.
When customers complain that they did not consent to enrollment in a plan, Discover insists that it has a recording of the authorization, “but often resolves such disputes in its own favor based on factors such as the length of time the cardholder has been enrolled, regardless of any recording,” the state says.
Discover automatically charges fees for the plans on its customers’ credit cards, so that cardholders who do not pay close attention to their statements may not notice the unauthorized charges for months, Swanson says.
Though Discover has partially or fully reimbursed some cardholders who complained, in other cases it rejects the claim “even when the recording demonstrates the deceptive ‘gotcha’ tactics of the telemarketers,” the state says.
“For some enrolled cardholders, Discover was unable to produce any recording at all of the cardholder’s supposed authorization in response to the Minnesota Attorney General’s Civil Investigation Demand,” Swanson says.
Minnesota says that Discover receives a high volume of complaints and will cancel a cardholder’s enrollment if requested, though it often refuses to reimburse those who do not cancel within 30 days of enrollment.
One victim, 55 year-old postal worker, “D.E.”, says he “was financing two large expenses on his Discover card, but did not use the card for day-to-day purchases,” and did not regularly check for new purchases on his account. While reviewing his statements after many months, he realized that he had been charged more than $900 for Discover’s “Payment Protection Plan.”
“The recording of D.E.’s telemarketing call, produced by Discover during the State’s investigation, reveals that D.E. never gave his authorization for enrollment in the product but was simply read an incomprehensible and meaningless ‘disclosure’ by the telemarketer, after which, the telemarketer hung up,” according to the complaint. D.E. says Discover has not reimbursed him.
“In addition to the obvious unfairness of enrolling cardholders without their valid authorization, Discover reaps an extra windfall because these enrollees will never invoke the supposed benefits of the plans for which they were charged,” Swanson says.
Minnesota demands civil penalties, costs of its investigation, and restitution for deceptive trade and unjust enrichment.