Capital One’s De-Branching Comes After your Locally-Owned Coffee Shop
By: Patrick Woodall
When the Federal Reserve foolishly approved the Capital One takeover of Discover, it ignored the fact that Capital One had relentlessly closed bank branches after a series of mergers over the past decades. Capital One had promised in each of these merger deals to maintain its geographic footprint but instead shuttered more than 70 percent of the branches. The Federal Reserve approved merger after merger, including with Discover, even though Capital One broke its promise to continue serving local communities.
This was one of the many reasons AFREF opposed this anti-competitive merger that would hurt customers and communities. But the branch shutdown that especially harmed low-income neighborhoods and communities of color that already have fewer mainstream banking options was part of Capital One’s business strategy. CEO Richard Fairbank told the Washington Business Journal that “over the years, [Capital One] sort of leaned into the closing of branches” to focus on its national digital banking.
Rather than having branches, Capital One has branched out into the coffee business, opening more than 60 Capital One Cafés across the country. These coffee shops are not branches, they are full service immersive bank marketing centers with coffee, croissants, and free WiFi. Capital One sales representatives circulate among the coffee shop patrons (Capital One cardholders get a 50 percent discount) and offer to help current and potential customers connect with Capital One banking services.
This seems a pretty straightforward mixing of banking and commerce that Congress and federal law have long prohibited because it can create hazardous combinations of economic power and political influence and can create conflicts of interest that harm the bank and the financial system. A bank unduly interested in its affiliated commercial enterprises can make imprudent decisions that can lead to instability during times of economic stress. But it also allows powerfully situated banks to bankroll business ventures that unfairly harm the commercial rivals.
The rivals of Capital One Cafés are your local, neighborhood coffee shop. Think a coffee shop bankrolled by one of the nation’s largest banks doesn’t have an unfair competitive advantage? Well, Capital One Cafés give away free coffee one day a week. A Dallas Morning News headline observed that “Capital One challenging Starbucks as hangout spot with new cafes.” Capital One’s financial muscle can subsidize retail rents, underwrite losses from giveaways, and provide marketing muscle to promote the co-branded coffee shops.
That is precisely why federal law frowns on the combination of banking and commerce and one coffee shop owner in New York City has had enough. Jason Scherr, founder and CEO of Think Coffee, has been trying to get the Office of the Comptroller of the Currency to enforce the rules banning banks from owning businesses. As Scherr notes:
“This issue goes far beyond a handful of cafés. It’s about ensuring a level playing field where small businesses aren’t forced to compete with banks that break the rules to sell financial products. When regulators ignore these obvious violations, they tip the scales toward giant banks and away from mom-and-pops.”
Mr. Scherr and others are calling out this unfair and flatly unlawful practice and demanding an end to it. It’s time for the Comptroller of the Currency to actually enforce the regulations that are already on the books and New York State Attorney General Letitia James to investigate Capital One Cafés for unfair and anti-competitive business practices to put a stop to this Wall Street bank’s attack on locally-owned small businesses.