Discover Financial Services is facing a government probe over
its student-loan business, the consumer lender said in a regulatory
filing Tuesday.
The Consumer Financial Protection Bureau has issued Discover a
civil investigative demand seeking documents and other information
regarding the student-loan-servicing practices of Discover Bank,
the company's banking subsidiary, the filing said.
Separately, Discover also said the Federal Deposit Insurance
Corp. has notified the company of possible "deficiencies" in
Discover Bank's program for anti-money-laundering and Bank Secrecy
Act measures.
Discover said it is cooperating with both agencies and warned
that it could face civil penalties and be asked to change its
business practices if either regulator files an enforcement action
against the company. The lender may also be forced to refund money
to customers in the student-loan-servicing matter.
A spokesman for the Riverwoods, Ill.-based company didn't
immediately respond to requests for comment on Tuesday.
The student-loan probe comes amid a broader investigation by
state and federal regulators of student-lending practices.
In December, the CFPB said it was expanding its monitoring of
student-loan servicers, which collect payments from and handle
billing for borrowers, to the largest nonbank servicers. The agency
already oversees servicing by banks.
The agency and consumer advocates have raised concerns that
student-loan servicers have in some cases failed to properly credit
borrowers' payments and charged improper fees.
Illinois Attorney General Lisa Madigan is leading a multistate
investigation of student lender SLM Corp. that focuses on the
firm's debt collection, loan servicing and other practices, a
spokeswoman for Ms. Madigan said last week.
Discover has expanded beyond its core business of credit-card
lending in recent years in a bid to grow its revenue, adding
student loans, mortgages and other products for consumers. The
company is one of the largest providers of private student
loans.
In its filing Tuesday, Discover also noted that fraud-related
losses associated with merchants, customers and other third-parties
have continued to rise.
Fraud losses were $110 million the last calendar year, up from
$93 million in the fiscal year ended Nov. 30, 2012, and $72 million
in the fiscal year ended Nov. 30, 2011.
Write to Andrew R. Johnson at andrewr.johnson@wsj.com
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