Discover 2010 Annual Report Download - page 19

Fraud Prevention
We actively monitor our customers’ accounts to prevent, detect, investigate and resolve fraud. Our fraud prevention
processes are designed to protect the security of cards, applications and accounts in a manner consistent with our
customers’ needs to easily acquire and use our products. Prevention systems handle the authorization of application
information, verification of customer identity, sales, processing of convenience and balance transfer checks, and
electronic transactions.
Each credit card transaction is subject to screening, authorization and approval through a proprietary POS decision
system. We use a variety of techniques that help identify and halt fraudulent transactions, including adaptive models,
rules-based decision-making logic, report analysis, data integrity checks and manual account reviews. Accounts identified
by the fraud detection system are managed by proprietary software that integrates fraud prevention and customer
service. Strategies are subject to regular review and enhancement to enable us to respond quickly to changing credit
conditions as well as to protect our customers and our business from emerging fraud activity.
Discover Card Terms and Conditions
The terms and conditions governing our credit card products vary by product and change over time. Each credit card
customer enters into a cardmember agreement governing the terms and conditions of the customer’s account. Discover
card’s terms and conditions are generally uniform from state to state. The cardmember agreement permits us, to the
extent permitted by law, to change any term of the cardmember agreement, including any finance charge, rate or fee, or
add or delete any term of the cardmember agreement, with notice to the customer as required by law. The customer has
the right to opt out of certain changes of terms and pay their balance off under the unchanged terms. Each cardmember
agreement provides that the account can be used for purchases, cash advances and balance transfers. Each Discover
card account is assigned a credit limit when the account is initially opened. Thereafter, individual credit limits may be
increased or decreased from time to time, at our discretion, based primarily on our evaluation of the customer’s
creditworthiness. We offer various features and services with the Discover card accounts, including the Cashback Bonus
reward described under “ – Marketing – Rewards/Cashback Bonus.”
All Discover card accounts generally have the same billing structure, though there are some differences between the
consumer and business credit cards. We generally send a monthly billing statement to each customer who has an
outstanding debit or credit balance. Customers also can waive their right to receive a physical copy of their bill, in which
case they will receive email notifications of the availability of their billing statement online. Discover card accounts are
grouped into multiple billing cycles for operational purposes. Each billing cycle has a separate billing date, on which we
process and bill to customers all activity that occurred in the related accounts during the period of approximately 28 to 32
days that ends on that date.
Discover card accounts are assessed periodic finance charges using fixed and/or variable interest rates. Certain
account balances, such as balance transfers, may accrue periodic finance charges at lower fixed rates for a specified
period of time. Variable rates are indexed to the highest prime rate published in The Wall Street Journal on the last
business day of the month. Periodic finance charges are calculated using the daily balance (including current
transactions) method, which results in daily compounding of periodic finance charges, subject to a grace period on new
purchases. The grace period essentially provides that periodic finance changes are not imposed on new purchases, or
any portion of a new purchase, that is paid by the due date on the customer’s current billing statement if the customer
paid the balance on their previous billing statement in full by the due date on that statement. Neither cash advances nor
balance transfers are subject to a grace period.
Each customer with an outstanding debit balance in his or her consumer Discover card account must generally make a
minimum payment each month. If a customer exceeds his or her credit limit as of the last day of the billing period, we
may include all or a portion of this excess amount in the customer’s minimum monthly payment. A customer may pay the
total amount due at any time. We also may enter into arrangements with delinquent customers to extend or otherwise
change payment schedules, and to waive finance charges and/or fees, including re-aging accounts in accordance with
regulatory guidance.
In addition to periodic finance charges, we may impose other charges and fees on Discover card accounts, including
cash advance transaction fees, late fees where a customer has not made a minimum payment by the required due date,
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