Discover 2015 Annual Report Download - page 56

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We may be unsuccessful in promoting and protecting our brands or protecting our other intellectual property, or
third parties may allege that we are infringing their intellectual property rights.
The Discover, PULSE and Diners Club brands have substantial economic and goodwill value. Our success is
dependent on our ability to promote and protect these brands and our other intellectual property. Our ability to attract
and retain customers is highly dependent upon the external perception of our company and brands. Our brands are
licensed for use to business partners and network participants, some of whom have contractual obligations to promote
and develop our brands. For example, the Discover card brand is now being issued by certain Diners Club licensees in
their local markets. If our business partners do not adhere to contractual standards, engage in improper business
practices, or otherwise misappropriate, use or diminish the value of our brands or our other intellectual property, we
may suffer reputational and financial damage. If we will not be able to adequately protect ourselves, our overall
business success may be adversely affected. In addition, third parties may allege that our marketing, processes or
systems may infringe their intellectual property rights. Given the potential risks and uncertainties of such claims, our
business could be adversely affected by having to pay significant monetary damages or licensing fees, and we may
have to alter our business practices.
Laws, regulations, and supervisory guidance and practices, or the application thereof, may adversely affect our
business, financial condition and results of operations.
We must comply with an array of banking, consumer lending and payment services laws and regulations in all of
the jurisdictions in which we operate as described more fully in “Business — Supervision and Regulation” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Regulatory Environment
and Developments.” Regulatory developments, findings and ratings could negatively impact our business strategies or
require us to: limit or change our business practices, restructure our products in ways that we may not currently
anticipate, limit our product offerings, invest more management time and resources in compliance efforts, limit the fees
we can charge for services, or limit our ability to pursue certain business opportunities and obtain related required
regulatory approvals. For additional information regarding bank regulatory limitations on acquisitions and investments,
see "Business — Supervision and Regulation — Acquisitions and Investments." See Note 20: Litigation and Regulatory
Matters to our consolidated financial statements for more information on recent matters affecting Discover and the
second risk factor in this section regarding the regulatory environment for the businesses in which we engage.
In addition, we are subject to inquiries and enforcement actions from state attorney general offices and regulation
by the Federal Trade Commission, state banking regulators and the U.S. Department of Justice, as well as the SEC and
New York Stock Exchange in our capacity as a public company. We also are subject to the requirements of entities that
set and interpret the accounting standards (such as the FASB, the SEC, banking regulators and our independent
registered public accounting firm) who may add new requirements or change their interpretations on how standards
should be applied. A specific example of this is the proposed accounting standards update related to calculation of
loan loss reserves. In December 2012, the FASB issued an exposure draft containing a current expected credit loss
("CECL") model for lenders and financial institutions to evaluate impairment of loans and financial instruments. The
model as currently proposed requires evaluation of impairment based on an estimate of life of loan losses whereas rules
currently in effect require utilization of an incurred loss model. The FASB is continuing to deliberate and refine the CECL
model based on feedback received and a final standard is expected to be issued in 2016. While we continue to
evaluate the model and provisions in the exposure draft and both are subject to change, this and other guidance not
yet issued could potentially materially impact how we record and report our financial condition and results of
operations, or could have an impact on regulatory capital.
Failure to comply with laws, regulations and standards could lead to adverse consequences such as financial,
structural, reputational and operational penalties, including receivership, litigation exposure and fines (as described
further below). Failure to comply with anti-corruption and other laws can expose us and/or individual employees to
potentially severe criminal and civil penalties. Specifically, we are subject to anti-corruption laws and regulations,
including the U.S. Foreign Corrupt Practices Act and other laws, that prohibit the making or offering of improper
payments. Legislative, regulatory and tax code changes could impact the profitability of our business activities, require
us to limit or change our business practices or our product offerings, or expose us to additional costs (including
increased compliance costs). Significant changes in laws and regulations may have a more adverse effect on our results
of operations than on the results of our larger, more diversified competitors.