Overselling Bites Discover Card

Was it worth it? Ask Discover Financial Services who is facing an enforcement action by the Federal Deposit Insurance Corp. over the way it sold its payment protection, identity theft protection and other products.
This follows class actions against the company in eight states and significant buzz on the blogs and airwaves from unhappy customers. The class action suits claim several questionable tactics including enrolling customers in fee services without knowledge or authority, incurring hundreds and thousands of dollars in fees from their customers.

Fee Revenue from these products contributes about 3% to Discovers' net income. During the period of the questionable sales tactics, Discover increased fee revenue by 4%. But since this news, Discover's stock price (DSF) dropped $0.45 the day the FDIC announced the enforcement and fell an additional 3.20 over the next few days, or ~15% of the stock's $26 value.

The company has since discontinued the aggressive sales tactics in question, but significant damage has been done to its brand and customer trust as can be evidenced by several customer blogs. By polluting their water source, Discover has limited its chances for healthy growth and long term customer satisfaction. It also must face fines, legal action, and additional governmental scrutiny that will distract them from their core business.

Discover has fallen to a Bad place among its competitors and earned a spot in the BetterBusinessBanter's "Good, Bad, and the Ugly".

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