Discover 2009 Annual Report Download - page 47

technologies. In addition, the integration of any acquisition may divert management’s time and resources from our core
business and disrupt our operations. We may allocate resources, such as time and money, on projects that do not
increase our earnings. To the extent we pay the purchase price of any acquisition in cash, it would reduce our cash
balances; similarly, if the purchase price is paid with our stock, it could be dilutive to our stockholders.
We are subject to regulation by a number of different regulatory agencies, which have broad discretion to require us
to alter our operations in ways that could adversely affect our business or subject us to penalties for noncompliance.
We must comply with an array of banking and consumer lending laws and regulations in all of the jurisdictions in
which we operate. As a bank holding company, we are subject to oversight, regulation and examination by the Federal
Reserve. Our subsidiary, Discover Bank, is subject to regulation and regular examinations by the FDIC and the Delaware
Bank Commissioner. In addition, we are subject to regulation by the Federal Trade Commission, state banking regulators
and the U.S. Department of Justice, as well as the SEC and New York Stock Exchange in our capacity as a public
company. In addition, as our payments business has expanded globally through the acquisition of Diners Club, we are
subject to government regulation in countries in which our networks operate or our cards are used, either directly or
indirectly through regulation affecting Diners Club network licensees.
From time to time, these regulations and regulatory agencies have required us to alter certain of our operating
practices, and may require us to do the same in the future. Our ability to introduce new products or introduce new pricing
may be impaired or delayed as a result of regulatory review or failure to obtain required regulatory approvals. Various
federal and state regulators have broad discretion to impose restrictions and requirements on our company, subsidiaries
and operations. U.S. federal and state consumer protection laws and rules, and laws and rules of foreign jurisdictions
where we conduct business limit the manner and terms on which we may offer and extend credit. We are subject to
capital, funding and liquidity requirements prescribed by statutes, regulations and orders. We are also subject to the
requirements of accounting standard setters and those who interpret the accounting standards (such as the FASB, the
SEC, banking regulators and our outside auditors), who may change their interpretations on how standards should be
applied, potentially materially impacting how we record and report our financial condition and results of operations.
Failure to comply with laws, regulations and other requirements could lead to adverse consequences such as financial,
structural, reputational and operational penalties, including receivership, litigation exposure and fines. In addition, efforts
to abide by these laws and regulations may increase our costs of operations or limit our ability to engage in certain
business activities, including affecting our ability to generate or collect receivables from customers.
Laws, regulations, and supervisory guidance and practices, or the application thereof, may adversely affect our
business, financial condition and results of operations.
Proposals for legislation further regulating matters affecting public companies are continually being introduced in the
U.S. Congress and in state legislatures, including reforms related to health care, employment and particularly the
financial services industry. Congress is considering extensive changes to the laws regulating financial services firms,
including bills that address risks to the economy and the payments system through a variety of measures. Legislation
approved in the House in December 2009, and a similar measure under consideration in the Senate, propose a new
independent Consumer Financial Protection Agency (“CFPA”) that would regulate consumer financial services and
products, including credit, savings and payment products. The President has made the enactment of financial reform
legislation a priority, although there is significant opposition to several components, including the creation of a CFPA.
Passage of the bills in their present form would have a material adverse impact on us, but prospects for approval of the
legislation, and the content of a final bill, are unclear.
The agencies regulating the financial services industry also periodically adopt changes to their regulations and
supervisory guidance and practices. In light of current conditions in the U.S. financial markets and economy, as well as a
heightened regulatory and Congressional focus on consumer lending, regulators have increased their scrutiny of the
financial services industry, the result of which has included new proposed regulations and regulatory guidance. For
example, in October 2009, the Federal Reserve issued proposed guidance on incentive compensation policies at banking
organizations. We are unable to predict the impact of this enhanced scrutiny or whether any of these proposals will be
implemented or in what form. We are also unable to predict whether any additional or similar changes to statutes or
regulations, including the interpretation or implementation thereof, will occur in the future.
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