Discover 2009 Annual Report Download - page 21

All Discover card accounts generally have the same billing structure, though there are some differences between the
consumer and business credit cards, as noted below. We generally send a monthly billing statement to each customer
who has an outstanding debit or credit balance. Customers also can waive their right to receive a physical copy of their
bill, in which case they will receive email notifications of the availability of their billing statement online. Discover card
accounts are grouped into multiple billing cycles for operational purposes. Each billing cycle has a separate billing date,
on which we process and bill to customers all activity that occurred in the related accounts during the period of
approximately 28 to 32 days that ends on that date.
Discover card accounts are assessed periodic finance charges using fixed and/or variable interest rates. Neither cash
advances nor balance transfers are subject to a grace period. Periodic finance charges on purchases are calculated on a
daily basis, subject to a grace period on new purchases that essentially provides that periodic finance changes are not
imposed on new purchases, or any portion of a new purchase, that is paid by the due date on the customer’s current
billing statement if the customer paid the balance on their previous billing statement in full by the due date on that
statement. Certain account balances, such as balance transfers, may accrue periodic finance charges at lower fixed rates
for a specified period of time. Variable rates are indexed to the highest prime rate published in The Wall Street Journal
on the last business day of the month.
Each customer with an outstanding debit balance in his or her consumer Discover card account must generally make a
minimum payment each month. If a customer exceeds his or her credit limit as of the last day of the billing period, we
may include all or a portion of this excess amount in the customer’s minimum monthly payment. From time to time, we
have offered and may continue to offer eligible customers the opportunity not to make the minimum monthly payment,
while continuing to accrue periodic finance charges, without being considered past due. A customer may pay the total
amount due at any time. We also may enter into arrangements with delinquent customers to extend or otherwise change
payment schedules, and to waive finance charges, fees and/or principal due, including re-aging accounts in accordance
with regulatory guidance. Our income may be reduced during any period in which we offer customers the opportunity
not to make the minimum monthly payment or to extend or change payment schedules.
In addition to periodic finance charges, we may impose other charges and fees on Discover card accounts, including
cash advance transaction fees, late fees where a customer has not made a minimum payment by the required due date,
balance transfer fees, foreign currency transaction fees and returned payment fees. We also charge fees for each time we
decline to honor a balance transfer check, cash advance check, or other promotional check due to such reasons as
insufficient credit availability, delinquency or default.
We use the average daily balance method for determining periodic finance charges for Discover card accounts. The
average daily balance method means that, subject to the grace period for new purchases, we impose periodic finance
charges on the average daily balance of a customer’s card account for the current billing cycle.
Terms and conditions may vary for other products, such as the Discover Business card.
Discover Network Operations
We support our growing base of merchants through a merchant acquiring model that includes direct relationships with
large merchants in the United States and arrangements with merchant acquirers for small- and mid-size merchants. In
addition to our U.S.-based merchant acceptance locations, Discover Network cards are also accepted at many locations
in Canada, Mexico, the Caribbean, China and Japan.
We have chosen to retain direct relationships with most of our largest merchant accounts because many prefer dealing
with us directly, we are able to retain the entire discount revenue from the merchant, and we are able to capitalize on
joint marketing programs and opportunities. Competitor networks and credit card issuers typically do not enjoy direct
relationships with merchants. The terms of our direct merchant relationships are governed by a merchant services
agreement. These agreements also are accompanied by additional program documents that further define our network
functionality and requirements, including operating regulations, technical specifications and dispute rules. To enable
ongoing improvements in our network’s functionality and in accordance with industry convention, we publish updates to
our program documents on a semi-annual basis.
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