Item 1. Business.
Item 1A.
Item 1A. Risk Factors.
Item 2. Properties.
Item 3. Legal Proceedings.
Item 1B.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 4.
Item 4. Mine Safety Disclosures.
Not applicable.
Substitute information provided in accordance with General Instruction J to Form 10-K:
Item 1112(b) of Regulation AB. Significant Obligors of Pool Assets (Financial Information).
The primary asset of Discover Card Execution Note Trust (the “Note Issuance Trust”) is the Discover Card Master Trust I, Series 2007-CC collateral certificate, which represents an undivided interest in Discover Card Master Trust I (the “Master Trust”), whose assets include Discover Card receivables existing as of specified dates in designated accounts, which receivables have been transferred to the Master Trust by Discover Bank and Discover Funding LLC, as applicable. The investor interest in receivables for the collateral certificate reflects the aggregate nominal liquidation amount of notes issued by the Note Issuance Trust. The Master Trust, therefore, may be considered a significant obligor in relation to the Note Issuance Trust. Pursuant to Instruction 3.b. to Item 1112(b) of Regulation AB, the information required by Instruction J to Form 10-K in respect of the Master Trust has been disclosed in this report on Form 10-K in lieu of the information otherwise contemplated by Item 1112(b).
The pool assets held by the Master Trust do not include any significant obligors.
Item 1114(b)(2) of Regulation AB. Credit Enhancement and Other Support, Except for Certain Derivatives Instruments (Information Regarding Significant Enhancement Providers) (Financial Information).
Not applicable.
Item 1115(b) of Regulation AB. Certain Derivatives Instruments (Financial Information).
Not applicable.
Item 1117 of Regulation AB. Legal Proceedings.
Discover Bank
In the normal course of business, from time to time, Discover Bank and/or one or more of its affiliates have been named as a defendant in various legal actions, including arbitrations, class actions, and other litigation, arising in connection with our activities. Certain of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. Discover Bank contests liability and/or the amount of damages as appropriate in each pending matter.
Discover Bank and its affiliates are also involved, from time to time, in other reviews, investigations and proceedings (both formal and informal) by governmental regulatory and enforcement agencies regarding its business, including, among other matters, accounting, tax and operational matters, some of which may result in adverse judgments, settlements, fines, penalties, injunctions, decreases in regulatory ratings or other relief, which could materially impact Discover Bank’s financial results, increase its cost of operations, require a change in business activities and product offerings or limit its ability to execute its business strategies and engage in certain business activities.
On July 22, 2015, Discover Bank, The Student Loan Corporation (“SLC”) and Discover Products Inc. (“DPI”) agreed to a consent order with the CFPB resolving the CFPB’s investigation into certain student loan servicing practices (the “2015 Order”). The 2015 Order expired in July 2020. On December 22, 2020, Discover Bank, SLC and DPI agreed to a consent order (the “2020 Order”) with the CFPB resolving the agency’s investigation into Discover Bank’s compliance with the 2015 Order. In connection with the 2020 order, Discover is required to implement a redress and compliance plan and must pay at least $10 million in consumer redress to consumers who may have been harmed and paid a $25 million civil money penalty to the CFPB.
U.S. Bank National Association
In the last several years, U.S. Bank National Association (“U.S. Bank”) and other large financial institutions have been sued in their capacity as trustee or successor trustee for certain residential mortgage backed securities (“RMBS”) trusts. The complaints, primarily filed by investors or investor groups against U.S. Bank and similar institutions, allege the trustees caused losses to investors as a result of alleged failures by the sponsors, mortgage loan sellers and servicers to comply with the governing agreements for these RMBS trusts. Plaintiffs generally assert causes of action based upon the trustees’ purported failures to enforce repurchase obligations of mortgage loan sellers for alleged breaches of representations and warranties, notify securityholders of purported events of default allegedly caused by breaches of servicing standards by mortgage loan servicers and abide by a heightened standard of care following alleged events of default.
U.S. Bank denies liability and believes that it has performed its obligations under the RMBS trusts in good faith, that its actions were not the cause of losses to investors, that it has meritorious defenses, and it has contested and intends to continue contesting the plaintiffs’ claims vigorously. However, U.S. Bank cannot assure you as to the outcome of any of the litigation, or the possible impact of these litigations on the trustee or the RMBS trusts.
On March 9, 2018, a law firm purporting to represent fifteen Delaware statutory trusts (the “DSTs”) that issued securities backed by student loans (the “Student Loans”) filed a lawsuit in the Delaware Court of Chancery against U.S. Bank National Association (“U.S. Bank”) in its capacities as indenture trustee and successor special servicer, and three other institutions in their respective transaction capacities, with respect to the DSTs and the Student Loans. This lawsuit is captioned The National Collegiate Student Loan Master Trust I, et al. v. U.S. Bank National Association, et al., C.A. No. 2018-0167-JRS (Del. Ch.) (the “NCMSLT Action”). The complaint, as amended on June 15, 2018, alleged that the DSTs have been harmed as a result of purported misconduct or omissions by the defendants concerning administration of the trusts and servicing of the Student Loans. Since the filing of the NCMSLT Action, certain Student Loan borrowers have made assertions against U.S. Bank concerning special servicing that appear to be based on certain allegations made on behalf of the DSTs in the NCMSLT Action.
U.S. Bank has filed a motion seeking dismissal of the operative complaint in its entirety with prejudice pursuant to Chancery Court Rules 12(b)(1) and 12(b)(6) or, in the alternative, a stay of the case while other prior filed disputes involving the DSTs and the Student Loans are litigated. On November 7, 2018, the Court ruled that the case should be stayed in its entirety pending resolution of the first-filed cases. On January 21, 2020, the Court entered an order consolidating for pretrial purposes the NCMSLT Action and three other lawsuits pending in the Delaware Court of Chancery concerning the DSTs and the Student Loans, which remains pending.
U.S. Bank denies liability in the NCMSLT Action and believes it has performed its obligations as indenture trustee and special servicer in good faith and in compliance in all material respects with the terms of the agreements governing the DSTs and that it has meritorious defenses. It has contested and intends to continue contesting the plaintiffs’ claims vigorously.
PART II
The following Items have been omitted in accordance with General Instruction J to Form 10-K:
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Item 6.
Item 6. Selected Financial Data.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8.
Item 8. Financial Statements and Supplementary Data.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A.
Item 9A. Controls and Procedures.
Item 9B.
Item 9B. Other Information.
None.
PART III
The following Items have been omitted in accordance with General Instruction J to Form 10-K:
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11.
Item 11. Executive Compensation.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14.
Item 14. Principal Accountant Fees and Services.
Substitute information provided in accordance with General Instruction J to Form 10-K:
Item 1119 of Regulation AB. Affiliations and Certain Relationships and Related Transactions.
Discover Bank, which acts as the sponsor of its securitizations, is a wholly owned subsidiary of Discover Financial Services. Discover Funding LLC, which is a wholly owned subsidiary of Discover Bank, acts as depositor and beneficiary for the Note Issuance Trust and as holder of the residual transferor interest of the Master Trust. Discover Financial Services acquired Discover Bank in January 1985. Discover Bank and the trustee for the Master Trust formed the Master Trust in October 1993. Discover Bank originates the credit card receivables generated under certain designated Discover card accounts and transfers such credit card receivables to Discover Funding LLC for further transfer to the Master Trust. Discover Bank and the owner trustee formed the Note Issuance Trust on July 2, 2007. Discover Bank transferred an undivided interest in the receivables and other assets of the Master Trust, represented by the collateral certificate, to the Note Issuance Trust to support the issuance of notes on July 26, 2007.
Discover Bank acts as master servicer for the Master Trust and is currently the only servicer under the Pooling and Servicing Agreement with respect to the receivables. During the reporting period, Discover Bank outsourced certain servicing functions to its affiliate, DPI. While DPI has contracted with third-party service providers for certain services, Discover Bank is ultimately responsible for the overall servicing function. Discover Bank also acts as calculation agent for the Note Issuance Trust, which is part of the servicing function.
Item 1122 of Regulation AB. Compliance with Applicable Servicing Criteria.
Each of Discover Bank, DPI and U.S. Bank National Association (each, a “Servicing Participant”) has been identified as a party participating in the servicing function during the reporting period with respect to the pool assets held by each of the Master Trust and the Note Issuance Trust. Each of Discover Bank, DPI, and U.S. Bank National Association has completed a report on an assessment of compliance with the servicing criteria applicable to such Servicing Participant (each, a “Report on Assessment”) during the year ended December 31, 2020, which Reports on Assessment are attached as exhibits to this Form 10-K. In addition, each of Discover Bank, DPI, and U.S. Bank National Association has provided an attestation report (each, an “Attestation Report”) by a registered independent public accounting firm regarding its related Report on Assessment. Each Attestation Report is attached as an exhibit to this Form 10-K. None of the Reports on Assessment or the related Attestation Reports has identified any material instances of noncompliance with the servicing criteria applicable to such Servicing Participant described in the related Report on Assessment.
Item 1123 of Regulation AB. Servicer Compliance Statement.
Each of Discover Bank and DPI has been identified as a servicer during the reporting period with respect to the pool assets held by each of the Master Trust and the Note Issuance Trust. Each of Discover Bank and DPI has provided a statement of compliance (each, a “Compliance Statement”) with respect to the servicing activities conducted during the Note Issuance Trust’s year ended December 31, 2020, signed by an authorized officer, and each such Compliance Statement is attached as an exhibit to this Form 10-K.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules.
(a) List of documents filed as part of this Report
(1) Not applicable.
(2) Not applicable.
(3) The exhibits filed in response to Item 601 of Regulation S-K are listed below and either included or incorporated by reference as indicated:
Confidential treatment granted for portions of this Exhibit.
(b) See Item 15(a)(3) above for a list of exhibits filed in response to Item 601 of Regulation S-K.
(c) Not applicable.
Item 16. Form 10-K Summary.
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 23, 2021