Discover 2011 Annual Report Download - page 34

22
The effect of the Reform Act and other regulatory initiatives on our business and operations could be significant,
depending upon final implementing regulations, the actions of our competitors and the behavior of consumers and other
marketplace participants. The Reform Act, other legislative and regulatory changes, and enhanced scrutiny by our regulators
could have a significant impact on us by, for example, requiring us to limit or change our business practices, limiting our ability
to pursue business opportunities, requiring us to invest valuable management time and resources in compliance efforts,
imposing additional costs on us, limiting fees we can charge for services, requiring us to meet more stringent capital, liquidity
and leverage ratio requirements (including those under Basel III), impacting the value of our assets, increasing our cost or
ability to access the securitization markets for our funding, or otherwise adversely affecting our businesses. The Reform Act, its
implementing regulations, and any other significant financial regulatory reform initiatives could have a material adverse effect
on our business, results of operations, cash flows and financial condition. A more comprehensive description of the Reform Act
is contained in “Management's Discussion and Analysis of Financial Condition and Results of Operations - Regulatory
Environment and Developments.”
For additional information regarding the risks we face in connection with the Reform Act and other laws and regulations,
see the following risk factors below: "The Consumer Financial Protection Bureau may increase our compliance costs and have
a significant impact on our business," "Legislative and regulatory initiatives related to the student loan market may have a
significant impact on our strategy of profitably growing our student loan portfolio," "Legislative and regulatory reforms related
to the debit card market may have a significant impact on our PULSE network business and may result in decreases in our
PULSE network volume and revenue," "The Credit Card Accountability Responsibility and Disclosure Act of 2009 restricts our
business practices and negatively impacts our results of operations," "If we are unable to securitize our receivables, it may
have a material adverse effect on our liquidity, cost of funds and overall financial condition," "We may be limited in our ability
to pay dividends and repurchase our common stock," "Laws, regulations, and supervisory guidance and practices, or the
application thereof, may adversely affect our business, financial condition and results of operations," "Current and proposed
regulation addressing consumer privacy and data use and security could inhibit the number of payment cards issued and
increase our costs," and "Litigation and regulatory actions could subject us to significant fines, penalties and/or requirements
resulting in increased expenses."
The Consumer Financial Protection Bureau may increase our compliance costs and have a significant impact on our
business.
In July 2011, many consumer financial protection functions formerly assigned to the federal banking and other agencies
transferred to the CFPB. The CFPB has a large budget and staff, and has broad authority with respect to the businesses in which
we engage. It has authority to write regulations under federal consumer financial protection laws, and enforce those laws
against and examine large financial institutions, including Discover, for compliance. It is authorized to collect fines and provide
consumer restitution in the event of violations, engage in consumer financial education, track consumer complaints, request
data and promote the availability of financial services to underserved consumers and communities. In late 2011, the CFPB
began tracking consumer complaints for credit cards and mortgages via an online process that is expected to expand to student
loans in 2012. It has authority to prevent “unfair, deceptive or abusive” practices by issuing regulations or by using its
enforcement authority without first establishing regulatory guidance.
Because the CFPB has been recently established and its Director has been only recently appointed, there is significant
uncertainty as to how the CFPB will exercise and implement its regulatory, supervisory, examination and enforcement
authority. Depending on how the CFPB functions and its areas of focus, it could have a material adverse impact on our
businesses. The CFPB is expected to establish multiple divisions, each with its own rule writing and compliance examination
specialists, to focus on businesses in which we engage or expect to engage (such as revolving loans, student loans, mortgages,
other consumer loans and payments). Changes in regulatory expectations, interpretations or practices could increase the risk of
regulatory enforcement actions, fines and penalties. In addition to increasing our compliance costs and potentially delaying our
ability to respond to marketplace changes, actions by the CFPB could result in requirements to alter our products and services
that would make our products less attractive to consumers and impair our ability to offer them profitably. Should the CFPB
discourage the use of products we offer or steer consumers to other products or services that it deems to be preferable, we could
suffer reputational harm and a loss of customers. The CFPB's authority to change regulations adopted in the past by other
regulators (e.g., regulations issued under the Truth in Lending Act or the Credit Card Accountability Responsibility and
Disclosure Act of 2009, or the CARD Act, by the Federal Reserve), or to rescind or ignore past regulatory guidance, could
increase our compliance costs and litigation exposure. Our litigation exposure may also be increased by the CFPB's authority to
limit or ban pre-dispute arbitration clauses.
Table of Contents