Dive Brief:
- The Securities and Exchange Commission disagrees with Discover's accounting approach to a credit card misclassification case, the card issuer and network said in an earnings report released Wednesday.
- At issue is the way Discover is allocating misclassified card charges between revenue and expenses, the earnings report said. The report did not provide further detail.
- "Management is working diligently to resolve their comments," Discover CFO John Greene said in an earnings call with investors Thursday. The card network ended the earnings call without letting investors ask questions.
Dive Insight:
“As part of its review of the joint proxy statement and prospectus, the Staff of the SEC has indicated that they disagree with certain aspects of Discover's accounting approach for the card misclassification matter,” Discover wrote in its earnings report.
The SEC is focused on “the allocation of previously incurred card misclassification charges between revenue and expense,” according to Discover’s report.
Beginning in 2007, the Riverwoods, Illinois-based card network overcharged some credit card accounts by placing them into the highest merchant and merchant acquirer price tier.
The SEC is investigating the matter, Discover said in a filing last year.
An SEC spokesperson did not immediately respond to a request for comment Thursday. A Discover spokesperson said he could not provide any comment beyond what was written in the earnings report.
Discover does not expect card misclassification charges to impact its performance for the year, Greene said during the earnings call, although he did not elaborate.
Discover in July said it would set aside $1.2 billion to settle class-action lawsuits from merchants that were overcharged. And in April, Discover executives said the card network would set aside an additional $799 million for remediation in the misclassification case.
Discover said Thursday its reported third-quarter profit jumped 41% year over year to $965 million.
Capital One’s proposed $35.3 billion acquisition of Discover is still pending, with federal regulators reviewing it. As part of that proposal, the companies filed a preliminary proxy with the SEC that prompted the agency’s concern.
