Discover 2015 Annual Report Download - page 155

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On July 20, 2015, the CFPB and the FDIC terminated the joint consent order that they issued in September 2012
related to the marketing, sales and servicing by Discover Bank of the payment protection, identity theft protection, wallet
protection and credit score tracker products.
On July 22, 2015, the Company announced that its subsidiaries, Discover Bank, The Student Loan Corporation
and Discover Products, Inc. (the “Discover Subsidiaries”), agreed to a consent order with the CFPB resolving the
agency’s investigation with respect to certain student loan servicing practices. The CFPB’s investigation into these
practices has been previously disclosed by the Company, initially in February 2014. The order requires the Discover
Subsidiaries to provide redress of approximately $16 million to consumers who may have been affected by the activities
described in the order related to certain collection calls, overstatements of minimum payment due amounts in billing
statements, and provision of interest paid information to consumers, and provide regulatory disclosures with respect to
loans acquired in default. In addition, the Discover Subsidiaries have paid a $2.5 million civil money penalty to the
CFPB. As required by the consent order, on October 19, 2015, the Discover Subsidiaries submitted to the CFPB a
redress plan and a compliance plan designed to ensure that the Discover Subsidiaries provide redress and otherwise
comply with the terms of the order.
On September 4, 2015, the District Attorney of Trinity County, California filed a protection products lawsuit
against the Company (The People of the State of California Ex Rel, Eric L. Heryford, District Attorney, Trinity County v.
Discover Financial Services, et al.). The lawsuit asserts various claims under California's Unfair Competition Law with
respect to the Company's marketing and administration of various protection products. Plaintiff seeks restitution,
statutory civil penalties, attorneys' fees, costs and injunctive relief. The Company is not in a position at this time to assess
the likely outcome or its exposure, if any, with respect to this matter, but will seek to vigorously defend against all claims
asserted by the plaintiff.
21. Fair Value Measurements and Disclosures
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. ASC Topic 820, Fair Value Measurement,
provides a three-level hierarchy for classifying financial instruments, which is based on whether the inputs to the
valuation techniques used to measure the fair value of each financial instrument are observable or unobservable. It also
requires certain disclosures about those measurements. The three-level valuation hierarchy is as follows:
•Level 1: Fair values determined by Level 1 inputs are defined as those that utilize quoted prices (unadjusted) in
active markets for identical assets or liabilities that the Company has the ability to access.
•Level 2: Fair values determined by Level 2 inputs are those that utilize inputs other than quoted prices included in
Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted
prices for similar assets and liabilities in active or inactive markets, quoted prices for the identical assets in an
inactive market, and inputs other than quoted prices that are observable for the asset or liability, such as interest
rates and yield curves that are observable at commonly quoted intervals. The Company evaluates factors such as
the frequency of transactions, the size of the bid-ask spread and the significance of adjustments made when
considering transactions involving similar assets or liabilities to assess the relevance of those observed prices. If
relevant and observable prices are available, the fair values of the related assets or liabilities would be classified
as Level 2.
•Level 3: Fair values determined by Level 3 inputs are those based on unobservable inputs and include situations
where there is little, if any, market activity for the asset or liability being valued. In instances in which the inputs
used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value
hierarchy within which the fair value measurement in its entirety is classified is based on the lowest level input that
is significant to the fair value measurement in its entirety. The Company may utilize both observable and
unobservable inputs in determining the fair values of financial instruments classified within the Level 3 category.
The determination of classification of its financial instruments within the fair value hierarchy is performed at least
quarterly by the Company. For transfers in and out of the levels of the fair value hierarchy, the Company discloses the
fair value measurement based on the value immediately preceding the transfer.
The Company's assessment of the significance of a particular input to the fair value measurement in its entirety
requires judgment and involves consideration of factors specific to the asset or liability. Furthermore, certain techniques
used to measure fair value involve some degree of judgment and, as a result, are not necessarily indicative of the
amounts the Company would realize in a current market exchange.