Minnesota Attorney General Lori Swanson has filed suit against Discover Bank, accusing it of deceptively charging some credit card customers for pricey optional financial products that the company markets.

According to the compliant, the products were presented as a way for people to protect themselves from fraudulent or unauthorized charges and to enhance their financial security in the bad economy. Discover, one of the nation's largest credit card companies, claims to be in one out of four households with 54 million credit cards in circulation.

"The company charged some consumers for expensive add-on financial products without their understanding that their credit cards would be charged," said Swanson. "The irony is that the credit card company markets these products as a way for consumers to protect themselves from fraudulent or unauthorized credit card charges and financial instability in the bad economy."

Swanson says that in 2009 Discover earned nearly $300 million in annual revenue from the sale of these optional financial products, an increase of over $80 million, or over 37 percent, from 2007. This is in addition to the revenue the bank charges customers for interest and penalty fees (e.g. late fees, over-limit fees, etc.) In 2009, Discover reported net income of $1.3 billion.

The lawsuit alleges that Discover Bank and its affiliated processing company made aggressive, misleading, and deceptive telemarketing calls to sign people up for these products. Swanson said the company first lures the consumer into believing the call is a courtesy call from their credit card company and not a sales call -- that is, that the caller is simply touching base to make sure the customer is aware of all the benefits of the card.

Unaware a transaction was taking place

In some cases, Swanson says the company has charged people's credit cards for enrollment in these add-on products even though the consumer did not agree to purchase anything. In other cases, she says the company tricks people into unknowingly signing up for these products, usually by inducing consumers to say "ok" or "yes" to a benign statement without understanding they are signing up and then treating that response as authorization to bill their credit cards.

In many cases, Discover refuses to make refunds to aggrieved consumers, the investigation found.

A typical telemarketer generally cannot sign up a customer for a product or service unless the customer gives out their credit card number or other form of payment. Unlike a typical telemarketer, Discover is the consumer's credit card company and already has their credit card number.

Swanson says this wrinkle enables the company to charge consumers for extra financial products by making deceptive telemarketing calls in which some consumers did not give knowing consent to purchase the paid products.

Trickery

Swanson said her investigation found that Discover telemarketers used trickery as a matter of course.

For example, in some cases telemarketers read the consumer a purported "disclosure" in which they butcher or alter the text, leave out key words, run sentences together, pause when there is no period, or speed read the text, all to make it incomprehensible to the consumer.

In other cases, telemarketers leave out key terms like the fact the consumer is purchasing something or the price, and instead emphasize portions of the script that do not suggest a sale is taking place, like the company's customer service number. In other cases, the company leads customers to believe they are simply authorizing the company to send them materials in the mail to look over, with no agreement to purchase a product or have their credit card billed.

"People expect their credit card company to help them avoid fraudulent charges, not make them," said Swanson.

Defendants in the lawsuit include Discover Bank, a Delaware state bank; DFS Services, LLC, its affiliated processing company; and Discover Financial Services, the parent corporation of both entities. The lawsuit was filed in Hennepin County District Court and seeks injunctive relief, civil penalties, and restitution.