Discover 2009 Annual Report Download - page 48

In addition, regulation of the payments industry, including regulation applicable to us, merchant acquirers and our
other business partners and customers, has expanded significantly in recent years. For instance, various U.S. federal and
state regulatory agencies and state legislatures are considering new legislation or regulations relating to restrictions
regarding fees and interchange charged to merchants and acquirers, as well as additional charges for premium payment
card transactions, and other restrictions related to identity theft, privacy, data security and marketing that could have a
direct effect on us and our merchant and financial institution customers. In addition, the payments industry is the subject
of increasing global regulatory focus, which may result in costly new compliance burdens being imposed on us and our
customers and lead to increased costs and decreased payments volume and revenues. We, our Diners Club licensees and
Diners Club customers are subject to regulations that affect the payments industry in many countries in which our cards
are used.
Failure to comply with laws and regulations could lead to adverse consequences such as financial, structural,
reputational and operational penalties, including receivership, litigation exposure and fines. Legislative and regulatory
changes could impact the profitability of our business activities, require us to change certain of our business practices,
affect retention of our key employees, and expose us to additional costs (including increased compliance costs).
Significant changes in laws and regulations may have a more adverse effect on our results of operations than on the
results of our larger, more diversified competitors. For additional recent legislative and regulatory developments that may
affect our business, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations –
Legislative and Regulatory Developments.”
Current and proposed regulation addressing consumer privacy and data use and security could inhibit the number of
payment cards issued and increase our costs.
Regulatory pronouncements relating to consumer privacy, data use and security affect our business. In the United
States, we are subject to the Federal Trade Commission’s and the banking regulators’ information safeguard rules under
the Gramm-Leach-Bliley Act. The rules require that financial institutions (including us) develop, implement and maintain a
written, comprehensive information security program containing safeguards that are appropriate to the financial
institution’s size and complexity, the nature and scope of the financial institution’s activities, and the sensitivity of any
customer information at issue. The United States has experienced a heightened legislative and regulatory focus on data
security, including requiring consumer notification in the event of a data breach. In the United States, there are a number
of bills pending in Congress and in individual states, and there have been numerous legislative hearings focusing on
these issues. In addition, most states have enacted security breach legislation requiring varying levels of consumer
notification in the event of certain types of security breaches, and several other states are considering similar legislation.
Regulation of privacy, data use and security may cause an increase in the costs to issue payment cards and/or may
decrease the number of our cards that we or third parties issue. New regulations in these areas may also increase our
costs to comply with such regulations, which could materially adversely affect our earnings. In addition, failure to comply
with the privacy and data use and security laws and regulations to which we are subject, including by reason of
inadvertent disclosure of confidential information, could result in fines, sanctions, penalties or other adverse consequences
and loss of consumer confidence, which could materially adversely affect our results of operations, overall business and
reputation.
Litigation and regulatory actions could subject us to significant fines, penalties and/or requirements resulting in
increased expenses.
Businesses in the credit card industry have historically been subject to significant legal actions, including class action
lawsuits and patent claims. Many of these actions have included claims for substantial compensatory or punitive
damages. While we have historically relied on our arbitration clause in agreements with customers to limit our exposure
to consumer class action litigation, there can be no assurance that we will continue to be successful in enforcing our
arbitration clause in the future. Legal challenges to the enforceability of these clauses have led most card issuers and may
cause us to discontinue their use, and there are bills pending in Congress to directly or indirectly prohibit the use of
pre-dispute arbitration clauses. Further, we are involved in pending legal actions challenging our arbitration clause. In
addition, we may be involved in various actions or proceedings brought by governmental regulatory agencies in the
event of noncompliance with laws or regulations, which could subject us to significant fines, penalties or other
requirements resulting in increased expenses.
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