Discover Bank Charges Retailers Inflated Card Processing Fees, Class Action Says

New to ClassAction.org? Read our Newswire Disclaimer

A proposed class action alleges Discover Bank, DFS Services and parent company Discover Financial Services have knowingly charged merchants inflated fees to process credit card transactions.

Want to stay in the loop on class actions that matter to you? Sign up for ClassAction.org’s free weekly newsletter here.

The 21-page lawsuit explains that Discover charges retailers an “interchange fee” whenever a customer swipes their credit or debit card to make a purchase from their business. However, since at least 2008, Discover has systematically assessed interchange fees that are higher than the company promised and was contractually permitted to assess, the suit alleges.

According to the filing, Discover supposedly calculates the interchange fee for any given transaction based on the applicable interchange rate, which is a percentage of the transaction amount plus a flat fee of $0.10. Different types of cards are assigned different rates, the case says.

Discover publishes how it claims to calculate interchange fees on any given card transaction in its “interchange rate sheet,” the suit shares.

For instance, Discover’s interchange rate sheet indicates that “a card categorized as ‘Discover Consumer Credit’ will be assigned an Interchange Rate of 1.56% of the transaction plus a $0.10 flat fee if the card is present during the transaction,” the complaint explains. “A card categorized, instead, as ‘Discover Commercial Credit’ will be assigned an Interchange Fee of ‘2.30% + $0.10’ assuming the card is present.”

The lawsuit contends that Discover has overcharged retailers by misclassifying certain credit cards used in transactions as types of cards that are assigned higher interchange rates. Applying a higher interchange rate to a transaction results in a higher interchange fee for the merchant, the suit explains.

For example, even if a customer uses a “consumer” credit card for a transaction, Discover nevertheless misclassifies the card used as a “commercial” card and improperly assigns the transaction an interchange fee of 2.30 percent plus $0.10 rather than the appropriate 1.56 percent plus $0.10, the filing says.

“As a result of the misconduct alleged above, Discover unjustly received and retained millions of dollars in Interchange Fee overcharges assessed to Plaintiff and the Class,” the complaint claims.

Per the suit, Discover is contractually obligated to charge fees based on the rates and criteria specified in its interchange rate sheet. Moreover, merchants had no way of reasonably detecting Discover’s “misclassification scheme” until the company revealed its practice in regulatory filings that became publicly available on July 19, 2023, the case contends.

The lawsuit looks to represent any merchants who, at any time from 2008 to the present, accepted Discover credit cards and were charged interchange fees for one or more transaction(s) that were higher than the interchange fees applicable to such transaction(s) under Discover’s contemporaneous interchange rate sheet.

Get class action lawsuit news sent to your inbox – sign up for ClassAction.org’s free weekly newsletter here.