Discover 2014 Annual Report Download - page 66

-52-
recent legislative and regulatory areas of focus include servicing practices with respect to assisting student borrowers
with economic hardships, refinancing of private student loans, the liability of student borrowers in the event of cosigner
death or bankruptcy, the standard for discharging student loans in bankruptcy, loan payment allocation, and
requirements related to borrower military service. In October 2014, the CFPB student loan ombudsman for the private
student loan market issued the 2014 annual report required by the Dodd-Frank Act, which referenced these issues and
others. The enactment of new legislation or the adoption of new regulations or guidance may increase the complexity
and expense of servicing student loans. Legislators and regulators may take additional actions that impact the student
loan market in the future, which could cause us to restructure our private student loan product in ways that we may not
currently anticipate.
Mortgage Lending
The CFPB has indicated that the mortgage industry is an area of supervisory focus and that it will concentrate its
examinations and rulemaking efforts on the variety of mortgage-related topics required under the Dodd-Frank Act
including steering consumers to less favorable products, discrimination, abusive or unfair lending practices, predatory
lending, origination disclosures, minimum mortgage underwriting standards, mortgage loan origination compensation
and servicing practices. The CFPB has published several final rules impacting the mortgage industry, including rules
related to ability-to-repay, mortgage servicing and integrated mortgage origination disclosures. Failure to comply with
the ability-to-repay rule could result in possible CFPB enforcement action and special statutory damages plus actual,
class action and attorney fee damages, all of which a borrower may claim in defense of a foreclosure action at any
time. The new integrated mortgage origination disclosures rule, effective August 2015, requires combining disclosures
currently provided under the Truth in Lending Act and the Real Estate Settlement Procedures Act, resulting in significant
effort by the mortgage industry to test and implement as well as process changes with third-party settlement agents. In
addition, congressional committees have approved legislation that could significantly affect the single family housing
finance market in the United States, including proposals to wind down the government-sponsored enterprises, Fannie
Mae and Freddie Mac, to which we currently sell our mortgages. It is uncertain what the ultimate impact of these
developments will be on our mortgage business.
In October 2014, the Federal Reserve, FDIC, SEC and other federal regulatory agencies adopted a final rule to
implement requirements under the Securities Exchange Act of 1934, as added under the Dodd-Frank Act, exempting
"qualified residential mortgages" from the requirement that the sponsor of an asset-backed securitization retain not less
than five percent of the credit risk of the underlying assets. Because most of the mortgages we offer are "qualified
residential mortgages" as defined in the exemption, we do not expect the final rule to impact the pricing and depth of
the secondary mortgage market to which we sell our mortgages.
Payment Networks
The Dodd-Frank Act contains several provisions impacting the debit card market, including network participation
requirements and interchange fee limitations. The changing debit card environment, including competitor actions related
to merchant and acquirer pricing and transaction routing strategies, has adversely affected and is expected to continue
to adversely affect our PULSE network's business practices, network transaction volume, revenue and prospects for
future growth. We continue to closely monitor competitor strategies in order to assess their impact on our business and
on competition in the marketplace. The U.S. Department of Justice is examining some of these competitor pricing
strategies. In addition, the Dodd-Frank Act's network participation requirements impact PULSE's ability to enter into
exclusivity arrangements, which affect PULSE's current business practices and may materially adversely affect its
network transaction volume and revenue.
Publicly-reported incidents regarding unauthorized access to consumer information held by major retailers and
others has prompted a renewed focus by Congress and state legislators to possibly enact legislation to address future
data security breaches. In October 2014, the President signed a new Executive Order which, among other things,
directs the government to take the lead in moving the market towards more secure payment systems, including
implementing a new policy to secure payments to and from the federal government by applying chip and PIN
technology to newly issued and existing government credit cards and debit cards, and upgrading retail payment card
terminals at federal agency facilities to accept chip and PIN-enabled cards. In January 2015, the President announced
legislative proposals and administration efforts with respect to privacy and cybersecurity, including a specific proposal
for a national data breach notification standard and a proposal designed to encourage the private sector to increase
the sharing of information related to cyber threats. All these developments could ultimately result in the imposition of
requirements on Discover or other card issuers or networks that could increase costs or adversely affect the