FOR IMMEDIATE RELEASE
July 19, 2024
CONTACT
Carter Dougherty, Americans for Financial Reform, carter@ourfinancialsecurity.org
Bart Naylor, Public Citizen, bnaylor@citizen.org
Jimmy Wyderko, American Economic Liberties Project, jwyderko@economicliberties.org
Alan Pyke, National Community Reinvestment Coalition, apyke@ncrc.org
Hearing Highlights Arguments Against Capital One Takeover of Discover
Since Capital One announced plans to take over Discover, reasons to oppose the creation of this new megabank have only grown.
As federal regulators convene a hearing today on this risky merger (register to watch here), they must face the key arguments, which public interest groups will make, against it: the merger would reduce competition in the already concentrated credit card industry, it poses risks to the stability of the financial system, it would raise network fees for merchants, and it does not deliver for communities.
“Capital One’s claim that its acquisition of Discover is ‘pro-competitive’ defies both reality and legality,” said Ashley Nowicki, policy analyst at the American Economic Liberties Project. “In creating the sixth-largest bank and single largest credit card issuer, this merger would only serve to exacerbate existing banking concentration and result in higher swipe fees, increased interest rates, and restricted access to credit for consumers and small business owners that need it most. This merger is 13 times larger than what its own regulator says is ‘reasonable,’ which is why we urge the authorities to break with the history of rubber stamping harmful mergers in the banking industry and block this illegal deal.”
There are many reasons to oppose the merger.
Consumer protection. Rohit Chopra, director of the Consumer Financial Protection Bureau has called for scrutiny of past acquisitions to assess the merits of new ones. After Capital One purchased HSBC’s credit card business in 2011, it discontinued a popular low-cost subprime HSBC card and transitioned customers to a more expensive one. Similarly, Discover currently offers credit cards with interest rates 2 percentage points lower than what Capital One offers, even controlling for credit scores.
“The combined company would hold more than 30 percent of the outstanding credit card debt by people with non-prime credit scores, eliminating the key Capital One-Discover rivalry for middle-income customers,” said Patrick Woodall, managing director for policy at Americans for Financial Reform. “Consolidation would limit choices and raise costs for these families, with the impacts falling heavily on Black and Latine consumers.”
Financial stability. The Federal Reserve’s annual stress tests this month found that slowing economic growth is likely to significantly undermine Capital One’s earnings and financial performance due to its oversized credit card portfolio and high delinquency rates. Acquiring Discover would only exacerbate that tendency. The Bank Merger Act and Bank Holding Company Act, the controlling statutes in merger decisions, direct federal banking regulators to consider how consolidation can pose “risk to the stability of the United States banking or financial system.”
“This merger would exacerbate the problem that some banks are too-big-to-fail. As recently as the spring of 2023, the federal government shored up a set of regional banks through the expansion of deposit insurance and government-subsidized mergers,” said Bart Naylor, financial policy advocate with Public Citizen. With $625 billion in assets, Cap One-Discover would be larger than the three regional banks that failed that spring combined. Regulators should not compound our too-big-to-fail problem by approving this merger.”
Swipe fees. This transaction would lead to higher costs for merchants who pay swipe fees. Capital One will be able to raise debit fees on merchants by shifting its debit cards to Discover. Under federal regulations, Discover is exempt from debit card merchant fee caps because it owns a payment network and it currently charges merchant fees twice as high as the cap.
Contrary to Capital One’s rhetoric, the merger will do nothing to improve network competition on credit cards or the swipe fees that are hurting Main Street businesses and their customers.
“Nothing in the proposed merger changes the cartel pricing of swipe fees that are determined by Visa and Mastercard,” said Doug Kantor, general counsel of the National Association of Convenience Stores. “The lack of competitive market forces on credit cards cries out for legislative action. This merger isn’t the answer. The Credit Card Competition Act is needed in order to bring competition to that market.”
Weak benefits agreement. Capital One’s promises lack any credibility. The bank bailed out of its commitments on mortgage lending made to smooth the way for its purchase of ING Direct in 2012. But by then, Capital One already had the merger approved. Its new promises in the context of the Discover takeover are weak, unverifiable, and unenforceable. Most of what it is promising is a repacking of existing business and if the bank reneges after the merger, there is no plausible enforcement mechanism.
“The advocacy and banking oversight communities have seen this movie before: When Capital One wants a favor from regulators, it makes big promises — But the second regulators grant the bank its favor, Capital One quickly wriggles out of whatever portion of those promises isn’t making them a big enough profit,” said Jesse Van Tol, President and CEO of the National Community Reinvestment Coalition. “This new so-called community benefits plan is no different. It is full of misleading numbers, stems from a questionable process in which negotiating partners had to swear to never talk about their discussions, and offers no reason to think Capital One is going to keep its word this time.”
A large coalition of public interest groups opposes the Capital One-Discover merger. They outlined their reasons in a letter to regulators.
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