Discover 2009 Annual Report Download - page 29

unless (1) it is well-capitalized or (2) it is adequately capitalized and receives a waiver from the FDIC. A bank that is
adequately capitalized and that accepts brokered deposits under a waiver from the FDIC may not pay an interest rate on
any deposit in excess of 75 basis points over certain prevailing market rates. There are no such restrictions on a bank that
is well-capitalized. As of November 30, 2009, Discover Bank and Bank of New Castle each met the FDIC’s definition of a
well-capitalized institution for purposes of accepting brokered deposits. An inability to accept brokered deposits in the
future could materially adversely impact our funding costs and liquidity. For more information, see “Risk Factors – An
inability to accept or maintain deposits in the future could materially adversely affect our liquidity position and our ability
to fund our business.”
The FDIA also affords FDIC-insured depository institutions, such as Discover Bank and Bank of New Castle, the ability
to “export” favorable interest rates permitted under the laws of the state where the bank is located. Discover Bank and
Bank of New Castle are both located in Delaware and, therefore, charge interest on loans to out-of-state borrowers at
rates permitted under Delaware law, regardless of the usury limitations imposed by the state laws of the borrower’s
residence. Delaware law does not limit the amount of interest that may be charged on loans of the type offered by
Discover Bank or Bank of New Castle. This flexibility facilitates the current nationwide lending activities of Discover Bank
and Bank of New Castle.
Investment in Discover
Because Discover Bank and Bank of New Castle are each insured depository institutions, and we are a bank holding
company, certain acquisitions of our voting stock may be subject to regulatory approval or notice under U.S. Federal or
Delaware law. Investors are responsible for ensuring that they do not, directly or indirectly, acquire shares of our stock in
excess of the amount which can be acquired without regulatory approval under the Change in Bank Control Act, the
BHCA and the Delaware Change in Bank Control provisions, which prohibit any person or company from acquiring
control of us without, in most cases, the prior written approval of each of the FDIC, the Federal Reserve and the Delaware
Commissioner.
Consumer Lending Regulation
The relationship between us and our U.S. customers is regulated extensively under federal and state consumer
protection laws. Federal laws include the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting
Act and the Gramm-Leach-Bliley Act. Moreover, our U.S. banking subsidiaries are subject to the Servicemembers Civil
Relief Act, which protects persons called to active military service and their dependents from undue hardship resulting
from their military service. The Servicemembers Civil Relief Act applies to all debts incurred prior to the commencement of
active duty (including credit card and other open-end debt) and limits the amount of interest, including service and
renewal charges and any other fees or charges (other than bona fide insurance) that is related to the obligation or
liability. These and other federal laws, among other things, require disclosures of the cost of credit, provide substantive
consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information, provide
financial privacy protections, require safe and sound banking operations and prohibit unfair and deceptive trade
practices. State, and in some cases local, laws also may regulate in these areas as well as collection practices and other
additional consumer protections.
Violations of applicable consumer protection laws can result in significant potential liability in litigation by customers,
including civil money penalties, actual damages, restitution and attorneys’ fees. Federal banking regulators, as well as
state attorneys general and other state and local consumer protection agencies, also may seek to enforce consumer
protection requirements and obtain these and other remedies.
The Credit Card Accountability Responsibility and Disclosure Act of 2009 (the “CARD Act”) was enacted in May 2009.
The CARD Act makes numerous changes to the Truth in Lending Act, affecting the marketing, underwriting, pricing,
billing and other aspects of the consumer credit card business. Several provisions of the CARD Act became effective in
August 2009, but most of the requirements will become effective in February 2010 and others will become effective in
August 2010. Legislation has been proposed to accelerate the effective date of all of the CARD Act provisions effective as
soon as the legislation is enacted, but prospects for enactment are uncertain. For more information, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Legislative and Regulatory Developments”
and “Risk Factors – The Credit Card Accountability Responsibility and Disclosure Act of 2009 will significantly impact our
business practices and our results of operations.”
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