Federal approval granted for Capital One-Discover partnership
The Federal Reserve and the Office of the Comptroller of the Currency have given their approval to Capital One's acquisition of Discover, marking the last two regulatory approvals needed to close the largest merger in the banking space in at least six years. The $35.3 billion acquisition, set to close on May 18, will create the largest U.S. credit card issuer by loan volume.
However, the merger has faced significant opposition from antitrust and consumer advocacy groups, who argue that the deal could violate antitrust laws, reduce market competition, and harm consumers. A federal class-action lawsuit has been filed by Capital One cardholders, alleging the merger violates antitrust laws. New York Attorney General Letitia James is conducting an investigation into whether the acquisition breaches state antitrust regulations, and has even requested an out-of-state subpoena for related documents.
The concerns stem from the potential consolidation of two of the largest credit card companies into a dominant player. This could lead to less competition in the credit card market, which may result in worse terms or higher prices for consumers. Politicians, consumer advocates, and academics have voiced their concerns, fearing that the merger could entrench market power and reduce competition traditionally fostered by standalone issuers and separate networks.
The Federal Deposit Insurance Corporation (FDIC) has issued three orders against Discover, including a fine of $150 million, restitution of at least $1.225 billion to overcharged customers, and an amendment to a 2023 consent order related to the price misclassification issue.
Despite these concerns, the regulators have given their approval. Critics remain concerned about the creation of a vertically integrated credit card issuer and payment network, fearing it could further entrench market power and reduce competition.
In an attempt to mitigate these concerns, Capital One has announced a community benefits plan. This plan includes $200 billion in consumer lending to low- and moderate-income consumers, the purchase licensing rights, $575 million in philanthropy, and $44 billion for affordable housing, economic development, public infrastructure, and alternative energy.
The OCC's approval is contingent on Capital One submitting a plan, within 120 days after the deal closes, on the actions it plans to take to address the causes of the enforcement actions against Discover.
The deal is estimated to unlock $1.2 billion in annual revenue for Capital One, making it the nation's eighth-largest bank after the transaction closes, with assets totalling $660 billion. A combined Capital One and Discover would control about 30% of the subprime credit-card market, "double the market share of their closest competitor."
The Fed and OCC approvals come roughly two weeks after reports surfaced that the Justice Department's new antitrust leader, Gail Slater, determined there isn't sufficient evidence to challenge the deal in court. However, critics like Van Tol of the National Community Reinvestment Coalition (NCRC) have voiced their disagreement, with Van Tol stating, "the feds got this one wrong."
The NCRC's official comment also stated, "it falls to state Attorneys General to intervene against the harmful, anticompetitive Capital One-Discover merger." The merger's implications for financial stability and payment ecosystems, particularly with regards to market concentration and reduced competition, continue to be a topic of debate and concern.
- The approval of the Federal Reserve and the Office of the Comptroller of the Currency for Capital One's acquisition of Discover has raised concerns in politics, business, finance, and general-news, with critics arguing the deal may violate antitrust laws, reduce competition, and potentially harm consumers.
- Amidst the ongoing debate surrounding the Capital One-Discover merger's implications for financial stability and payment ecosystems, the Office of the Comptroller's approval is contingent on Capital One addressing the causes of enforcement actions against Discover within 120 days of the deal closing, and the company has announced a community benefits plan to mitigate these concerns.
