Discover 2011 Annual Report Download - page 29

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Acquisitions and Investments
Since we are a bank holding company, and Discover Bank and Bank of New Castle are insured depository institutions,
we are subject to banking laws and regulations that limit the types of acquisitions and investments that we can make. In
addition, certain permitted acquisitions and investments that we seek to make are subject to the prior review and approval of
our banking regulators, including the Federal Reserve and FDIC. Our banking regulators have broad discretion on whether to
approve proposed acquisitions and investments. In deciding whether to approve a proposed acquisition, federal bank regulators
will consider, among other factors, the effect of the acquisition on competition, financial condition, and future prospects
including current and projected capital ratios and levels; the competence, experience, and integrity of management and record
of compliance with laws and regulations; the convenience and needs of the communities to be served, including our record of
compliance under the Community Reinvestment Act; and our effectiveness in combating money laundering.
In addition, certain acquisitions of our voting stock may be subject to regulatory approval or notice under U.S. federal or
Delaware state law. Investors are responsible for ensuring that they do not, directly or indirectly, acquire shares of our stock in
excess of the amount that can be acquired without regulatory approval under the Change in Bank Control Act, the Bank
Holding Company Act 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 Financial Services
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, the
Gramm-Leach-Bliley Act, the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the "CARD Act") and the
Reform 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,
prohibit unfair and deceptive trade practices, restrict our ability to raise interest rates, and subject us to increased regulatory
oversight. State, and in some cases local, laws also may regulate in these areas as well as the areas of collection practices and
provide other additional consumer protections.
Violations of applicable consumer protection laws can result in significant potential liability in litigation by customers,
including civil monetary 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 CARD Act was enacted in 2009, but most of the requirements became effective in 2010. The CARD Act made
numerous changes to the Truth in Lending Act, requiring us to make fundamental changes to many of our business practices,
including marketing, underwriting, pricing and billing. The CARD Act's restrictions on our ability to increase interest rates on
existing balances to respond to market conditions and credit risk ultimately limits our ability to extend credit to new customers
and provide additional credit to current customers. Other CARD Act restrictions have resulted and will continue to result in
reduced interest income and loan fee income. For more information, see “Risk Factors - The Credit Card Accountability
Responsibility and Disclosure Act of 2009 restricts our business practices and negatively impacts our results of operations.”
The Reform Act established the CFPB, which regulates consumer financial products and services provided by certain
financial services providers, including Discover. In July 2011, many consumer financial protection functions formerly assigned
to the federal banking and other agencies transferred to the CFPB. For more information, see “Risk Factors - The Consumer
Financial Protection Bureau may increase our compliance costs and have a significant impact on our business” and
“Management's Discussion and Analysis of Financial Condition and Results of Operations - Regulatory Environment and
Developments - Consumer Financial Services.”
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