Discover 2010 Annual Report Download - page 29

and other aspects of the consumer credit card business. Several provisions of the CARD Act became effective in August
2009, but most of the requirements became effective in February 2010 and in August 2010. For more information, see
“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Legislative and Regulatory
Developments” and “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 Bureau of Consumer Financial Protection (the “BCFP”) within the Federal Reserve, which
will regulate consumer credit. On July 21, 2011, many consumer financial protection functions currently assigned to the
federal banking and other designated agencies will shift to the BCFP. The BCFP will have broad rulemaking authority over
providers of credit, savings and payment services and products. The BCFP will be directed to prevent “unfair, deceptive or
abusive practices” and ensure that all consumers have access to markets for consumer financial products and services,
and that such markets are fair, transparent and competitive. The BCFP will have rulemaking and interpretive authority
under existing and future consumer financial services laws and broad supervisory, examination and enforcement
authority over large providers of consumer financial products and services, such as us. State officials will be authorized to
enforce consumer protection rules issued by the BCFP. For more information, see “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Legislative and Regulatory Developments” and “Risk Factors – The new
Bureau of Consumer Financial Protection may increase our compliance costs and have a significant impact on our
business.“
Electronic Funds Networks; Data Privacy
We operate the Discover and PULSE networks, which deliver switching and settlement services to financial institutions
and other program participants for a variety of ATM, POS and other electronic banking transactions. These operations
are regulated by certain state and federal banking, privacy and data security laws. Moreover, the Discover and PULSE
networks are subject to examination under the oversight of the Federal Financial Institutions Examination Council, an
interagency body composed of the federal bank and thrift regulators, and the National Credit Union Association. In
addition, as our payments business has expanded globally through Diners Club, we are subject to government regulation
in countries in which our networks operate or our cards are used, either directly or indirectly through regulation affecting
Diners Club network licensees. Changes in existing federal, state or international regulation could increase the cost or risk
of providing network services, change the competitive environment, or otherwise materially adversely affect our
operations. The legal environment regarding privacy and data security is particularly dynamic, and any disclosure of
confidential customer information could have a material adverse impact on our business, including loss of consumer
confidence.
In addition, the Reform Act requires, effective July 21, 2011, that interchange fees paid to or charged by payment card
issuers on debit card transactions be “reasonable and proportional” to the issuer’s cost in connection with authorization,
clearance or settlement of such transactions. The Reform Act directs the Federal Reserve to enact rules to implement this
requirement and to prohibit debit card networks and issuers from requiring debit card transactions to be processed solely
on a single payment network or two or more affiliated networks. Further, the Reform Act prohibits credit/debit network
rules that restrict merchants from offering discounts to customers in order to encourage them to use a particular form of
payment, or from setting minimum transaction amounts of $10.00 or less for use of credit cards, as long as such
merchant practices do not differentiate on the basis of the issuer or network. The impact of these provisions on the debit
card market and the PULSE network will depend upon Federal Reserve implementing regulations, the actions of our
competitors, and the behavior of other marketplace participants. The Federal Reserve issued proposed regulations for
comment in December 2010, and we are currently evaluating the proposal. The provisions applicable to the debit card
market may adversely affect PULSE’s business practices, network transaction volume, revenue, and prospects for future
growth. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Legislative and Regulatory Developments” and “Risk Factors – Recent 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.”
Money Laundering & Terrorist Financing Prevention Program
We maintain an enterprise-wide program designed to comply fully with all applicable anti-money laundering and anti-
terrorism laws and regulations, including the Bank Secrecy Act and the USA PATRIOT Act of 2001. This program includes
policies, procedures, training and other internal controls designed to mitigate the risk of money laundering or terrorist
financing posed by our products, services, customers and geographic locale. These controls include procedures and
-18-