Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: Advocacy groups oppose proposed Capital One–Discover merger, (Mar 7, 2024)

By Steven Melendez

The organizations say the tie-up would harm consumers, raise card fees, and violate antitrust laws.

A coalition of 22 advocacy groups say the proposed merger of Capital One and Discover Financial Services would be bad for consumers and violate antitrust law. Additionally, in their letter of March 5th to leaders of the Federal Reserve Board, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and the Antitrust Division of the Justice Department, they say that the combination of the two companies would create a new big bank—the sixth-largest bank in the country and the largest credit card issuer—that would be bad for the stability of the financial system.

“This takeover would turn Capital One into a behemoth of a credit card issuer that would be highly susceptible to a financial shock,” said Alexa Philo, senior policy analyst at Americans for Financial Reform, one of the groups behind the letter. “There are lots of reasons not to approve this merger. The threat to financial stability is one of them.”

Additionally, the combined institution melding Discover's payment network and Capital One's customer base, would be able to raise prices paid by merchants to accept its credit and debit cards, the groups claim.

"Capital One’s significant cardholder base, once transitioned to the Discover network, will magnify Discover’s pricing power in interchange fees, enabling Capital One to raise prices for merchants and consumers who will have little choice but to accept the cards of America’s largest issuer," the groups argue.

Further consolidation in the credit card industry could also raise costs paid by consumers, according to the groups. Already, larger banks typically charge more in interests and fees than their smaller counterparts, with Capital One among the costliest to its customers, the organizations say. And these fees are generally highest for credit card users with lower credit ratings. "Credit card fees take advantage of vulnerable consumers—but for card issuing banks, credit cards constitute one of the most profitable segments of their business," the groups say. "A Capital One–Discover merger would eliminate a top U.S. credit card issuer and further consolidate the industry, potentially leading to even higher prices."

The groups also point to historic compliance issues at Capital One and Discover, suggesting this makes the merger suspect under a framework outlined in the federal Bank Merger Act. The Consumer Financial Protection Bureau and Federal Deposit Insurance Corporation have issued consent orders against Discover, and Capital One "has had a litany of major compliance issues" in the decade after its acquisition of ING Direct, when the Federal Reserve required the bank to improve its risk management processes, the groups say. Capital One was also fined $100 million by the Office of the Comptroller of the Currency in 2018 for violating money laundering laws, according to the groups.

The groups urge the Federal Reserve and the OCC to block the merger and, if necessary, the Justice Department to sue to block it.

The coalition’s letter is signed by Accountable.US, AKPIRG, American Economic Liberties Project, American Family Voices, Americans for Financial Reform Education Fund, Center for Digital Democracy, Demand Progress Education Fund, Freedom BLOC, Institute for Local Self-Reliance, Main Street Alliance, National Community Reinvestment Coalition, New Economy Project, Open Markets Institute, Presente.org, P Street, Public Citizen, Revolving Door Project, Rise Economy (formerly California Reinvestment Coalition), RootsAction.org, U.S. PIRG, The Value Alliance, and 20/20 Vision.

Companies: Accountable.US; AKPIRG; American Economic Liberties Project; American Family Voices; Americans for Financial Reform Education Fund; Capital One; Center for Digital Democracy; Demand Progress Education Fund; Discover Financial Services; Freedom BLOC; ING Direct; Institute for Local Self-Reliance; Main Street Alliance; National Community Reinvestment Coalition; New Economy Project; Open Markets Institute; Presente.org; P Street; Public Citizen; Revolving Door Project; Rise Economy (formerly California Reinvestment Coalition); RootsAction.org; U.S. PIRG; The Value Alliance; 20/20 Vision

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