Riverwoods-based Discover Financial Services has named Michael Rhodes as its new CEO and president, filling the void left by the abrupt departure of its previous top executive in August amid compliance issues.
Rhodes, 58, the head of Canadian Personal Banking at TD Bank Group, is expected to begin at Discover on or before March 6, when he will also join the company’s board, according to a news release Monday.
John Owen, a retired bank executive and board member who was appointed interim CEO and president in August, will continue in that role until Rhodes takes the helm, the company said.
In August, Discover CEO and president Roger Hochschild abruptly resigned and stepped down from the board as the company navigated a potential enforcement action from federal regulators over a credit card “misclassification” issue that resulted in higher charges for certain merchants and merchant acquirers — financial institutions that process credit and debit card transactions.
Discover recorded a liability of $376 million to provide refunds to merchants and merchant acquirers as a result of the long-running card product misclassification, but had not made any disbursements as of Sept. 30, according to filings with the Securities and Exchange Commission.
Credit card holders were not affected by the misclassification, Discover said in the filings.
Rhodes, who previously worked at Bank of America and MBNA America Bank, joined TD Bank Group in 2011 to lead its North American credit card and merchant services business. He held several executive roles at TD Bank Group before being named to head up Canadian personal banking operations in January 2022.
“I am confident that under his leadership, Discover will be able to reach its full potential and take care of its customers at the highest industry levels while continuing to advance its commitments to enhancing compliance, risk management and corporate governance,” Discover Chairman Tom Maheras said in the news release Monday.
Discover remains in discussions with its regulators and is cooperating with an SEC investigation into the credit card misclassification, according to SEC filings. The investigations by regulators will “likely” result in enforcement actions and monetary penalties, the company said.
The company has also been named as a defendant in various lawsuits including separate class actions brought by merchants and shareholders.
On Sept. 25, the FDIC issued a consent order unrelated to the credit card misclassification to address shortcomings in Discover Bank’s consumer compliance management system and corporate governance oversight.
“Throughout my career I’ve developed a clear understanding of what it takes to deliver a great customer experience at every touch point, and I am confident that with its strong foundation and employee-base, Discover is well-positioned to capitalize on the market opportunities ahead,” Rhodes said in the news release.
As president and CEO, Rhodes will receive an initial base salary of $1 million per year, a transition award of $750,000 and up to $1.5 million to make up for incentive payments lost at his current employer during the 2023 fiscal year. Rhodes will also be eligible for a $2 million short-term and $7 million long-term annual incentive target bonus at Discover, according to SEC filings.
The Discover card was launched nationally in 1986 by then-owner Sears to compete for consumer wallet space with Visa, Mastercard and American Express.
In addition to its signature credit card, Discover offers private student loans, personal loans, home loans and deposit products. Discover had nearly $123 billion in loan receivables and $104 billion in deposits at the end of the third quarter, according to financial statements.
Discover’s share price, which fell sharply in August on the news of Hochschild’s resignation and traded under $80 in October, closed at $103.30 Monday.