Discover: Higher Interest Rates, More Fees, Fewer Loans

Discover CEO Says Card Reform Raises Fees, Cuts Perks (Update2)

By Peter Eichenbaum

June 19 (Bloomberg) -- Discover Financial Services Chief Executive Officer David Nelms said new U.S. safeguards for credit-card holders will mean higher interest rates, more fees and fewer loans industrywide.

“There are many consumers that actually will not benefit,” Nelms, 48, said yesterday in an interview after Riverwoods, Illinois-based Discover reported second-quarter results. “Some of the unintended consequences are going to be difficult for customers.”

President Barack Obama on May 22 signed into law limits on credit-card rate increases and fees, as well as curbs on marketing. The law was passed after complaints that credit-card firms deliberately confused customers to drive up profit. MasterCard Inc. said this month that some of the industry’s practices were “unfair” and “deceptive.”

Discover won’t be hurt as much as some competitors because it didn’t engage in some of the disputed practices, Nelms told analysts. Still, the U.S. rules will drive up average annual percentage rates on card loans and consumers may find it harder to get credit, Nelms said in the interview.

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