Warren, 12 Lawmakers Call on Regulators to Block Capital One-Discover Merger

Letter

Dear Acting Comptroller Hsu and Vice Chair Barr:
We write with deep concern about Capital One’s plan to acquire Discover Financial Services
(Discover), a deal that would combine two of the largest credit card issuers in the United States
into a “colossus” that would “leav[e] the industry with fewer competitors overall and eas[e]
pressure on companies to attract customers with favorable terms.”

Under federal law, the Office of the Comptroller of the Currency (OCC) and the Federal Reserve
(Fed) are charged with reviewing and approving mergers and acquisitions among the banks they
oversee, in conjunction with the Department of Justice (DOJ).
With nearly $500 billion in assets, Capital One is currently the nation’s ninth-largest bank. By acquiring Discover, Capital One would add a network of 305 million cardholders to its base of
more than 100 million customers, consolidating the credit card market and limiting customer choice. This merger would make Capital One the nation’s sixth-largest bank, and largest credit
card issuer, with over $200 billion in outstanding credit card loans.

This merger is bad for consumers. The banking and credit card industries are already highly
concentrated: today, the six largest bank holding companies control more assets than all other
bank holding companies combined. Consolidation in the banking sector causes “higher prices
and more fees, lower deposit rates, less access to credit, bank branch closures, and job cuts.” In
addition to harming consumers and small businesses, bank consolidation poses increased
systemic risk in the financial system, “reducing the number of smaller banks and creating even
more too big to fail banks.”
This merger announcement comes less than a week after the Consumer Financial Protection
Bureau (CFPB) issued a new report revealing the impact of credit card industry consolidation on
consumers. According to the report, large banks charge higher interest rates than small credit
card issuers, with “[n]early half of the largest credit card issuers” — including Capital One —
“offering cards with a maximum purchase APR over 30%.” The CFPB also found that large
credit card issuers charge average fees that are 70% higher than those charged by small
institutions. These higher rates and fees can cost consumers hundreds of dollars annually.

Capital One has a concerning history of mistreating consumers. In 2012, the CFPB ordered the
bank to refund $140 million to 2 million consumers with low credit scores and low credit limits
who were misled into paying for costly add-on products. In 2019, Capital One’s shoddy risk management practices resulted in a hacker gaining access to more than 100 million credit card applications and customer accounts.Discover’s record of compliance failures also raises
concerns. In October 2023, it reached a sweeping consent order with the FDIC that required
further action to address “‘violations of, and consumer harm related to’ various consumer
financial laws.”
Last month, the OCC issued a proposed policy statement “to provide transparency around the
features of merger applications and indicators that are consistent with and inconsistent with
approval.” Acting Comptroller Hsu indicated that “merger applications exist along a
spectrum. Some have significant deficiencies. Others are straightforward because the acquiring
bank is a model of safety and soundness and has earned the trust of the community and its
supervisors. The majority lie somewhere in between and require varying degrees of scrutiny
and multiple rounds of inquiry.” This merger, on its face, has significant deficiencies.
In a speech last year, moreover, Acting Comptroller Hsu warned that “I have seen up close
what happens when large banks become unmanageable and need government support to avoid
disorderly failure. The negative impacts of [too-big-to-manage] and too-big-to-fail on
households and communities, on the banking system and economy, and on trust are
immeasurable and can take years to mend.”
But OCC’s actions fly in the face of these concerns. The agency approved almost every merger
application it received in the last three years: 43 mergers in 2021, 30 in 2022, and 23 in 2023.
This included the approval of JP Morgan Chase’s purchase of First Republic, which increased
the size of America’s largest bank by $200 billion. Troublingly, the OCC’s proposed policy
statement essentially codifies the OCC’s current, permissive approach to bank mergers—the
same standard operating procedure that for decades has failed to protect consumer and the financial system. It is critical that the OCC strengthen its proposed policy statement to ensure
that future mergers do not harm consumers and the broader economy.
President Biden has made fighting concentration in the banking sector and other industries a key
priority of his administration. In his 2021 Executive Order on Competition, he specifically
directed financial regulators and the Attorney General to “update guidelines on banking mergers
to provide more robust scrutiny of mergers” and strengthen bank merger oversight “to ensure
Americans have choices among financial institutions and to guard against excessive market
power.”
This acquisition will be one of the most important tests of the efforts to prevent harmful bank
consolidation since the release of President Biden’s Executive Order. To protect consumers and
financial stability, we urge you to block this merger and strengthen your proposed policy
statement to prevent harmful deals in the future.

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