Discover 2015 Annual Report Download - page 68

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in supervisory examinations of Discover related to private student loans. On July 22, 2015, the CFPB issued a consent
order with respect to certain student loan servicing practices of Discover Bank, The Student Loan Corporation and
Discover Products, Inc. See Note 20: Litigation and Regulatory Matters to our consolidated financial statements for more
information.
The recent regulatory areas of focus include servicing and collection practices and other matters. On September
29, 2015, the CFPB issued a report, Student loan servicing: Analysis of public input and recommendations for reform,
which analyzes public comments to the CFPB’s May 2015 Request for Information on student loan servicing and
synthesizes public recommendations regarding certain student loan servicing practices. On October 1, 2015, the
Department of Education issued its report, Strengthening the Student Loan System to Better Protect All Borrowers, which
makes recommendations for student loan policy initiatives. In connection with these reports, the CFPB, Department of
Education and the Department of Treasury issued a “Joint Statement of Principles on Student Loan Servicing,” setting
forth regulatory principles to ensure that student loan servicing is consistent, accurate and actionable, accountable, and
transparent. 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 products in ways that
we may not currently anticipate.
Mortgage Lending
In June 2015, we announced the closure of our mortgage origination business acquired in 2012. We will
continue to originate home equity loans through Discover Bank. The mortgage industry continues to be an area of
supervisory focus and CFPB has stated that it will concentrate its examinations on the variety of mortgage-related topics
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, the Home Mortgage Disclosure Act and integrated mortgage origination
disclosures.
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 pricing 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, PULSE filed a lawsuit against Visa in late 2014 with respect to these competitive
concerns, which will significantly impact expenses for the payment services segment. In addition, the Dodd-Frank Act's
network participation requirements impact PULSE's ability to enter into exclusivity arrangements, which affects PULSE's
current business practices and may materially adversely affect its network transaction volume and revenue.
Increasing cybersecurity threats and incidents regarding unauthorized access to consumer information have
resulted in a continued focus by Congress and state legislators on legislation to address data security. In December
2015, the President signed an omnibus spending package that included the Cybersecurity Act of 2015. The
Cybersecurity Act establishes a framework to facilitate and encourage confidential sharing of cybersecurity information
among private sector and federal government entities and provides liability shields for cybersecurity information sharing
under the Act. Though the Act is effective immediately, the attorney general and the Department of Homeland security
secretary must release guidelines within 90 days to implement these provisions of the Act. Additionally, legislation has
been proposed to address security breach notification. 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
competitiveness of our credit card or debit card products. It is too early to know if the proposed legislation will become
law or the impact of these developments on Discover.
European interchange fee regulation entered into force in June 2015. Certain provisions became effective in
December 2015, while others will come into effect in June 2016. The regulation, among other things, caps interchange
fees of "four-party" networks such as Visa and MasterCard. However, the regulation provides that “three-party”
networks should be treated as “four-party” networks when they license third-party providers to issue cards and/or
acquire merchants or when they issue cards with a co-brand partner or through an agent. This means the caps apply to