Capital One Financial Corp.'s proposed acquisition of Discover Financial Services should be denied following Capital One's history of maltreatment of customers, community groups told regulators.
"Capital One is a bad actor with a long history of consumer abuse," Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition (NCRC), told the Federal Reserve Board and the Office of the Comptroller of the Currency in a July 19 public meeting about the planned deal, which was announced in February and is worth roughly $35.3 billion. The NCRC is the main advocacy group that reaches funding agreements with banks.
Capital One should not be allowed to make another acquisition after problems following its acquisition of ING Bank FSB, which closed in February 2012, Van Tol said. In its approval of the ING acquisition, the Office of the Comptroller of the Currency said Capital One's commitment included $28.5 billion for low- and moderate-income home mortgage loans and home equity lending. Van Tol said Capital One made a "false promise" as part of the community benefits plan associated with the merger because it eliminated the mortgage program a few years later and lent half of the amount promised.
Capital One has argued that the merger will promote competition, strengthen Discover's compliance and serve communities. At the meeting, proponents from groups working on affordable housing, meals for people experiencing homelessness and other issues, as well as members of the Virginia House of Delegates, supported the merger, citing the support they had received or observed from Capital One.
Van Tol said, however, that the new community benefit plan, announced July 17, is a continuation of current spending rather than an increase. Although the NCRC has reached many community benefits agreements with big banks, it opposes the Capital One-Discover merger and was not involved in the agreement.
NCRC analysts found only $4.5 billion in "new money" in the agreement, rather than $265 billion as promoted, and the agreement is smaller than other banks' community benefit plans, Van Tol said.
After the ING acquisition, Capital One has continued "to rack up violations, suggesting they are already too big to manage at their current size and possibly too big to care about violating federal and state laws," said Kevin Hill, a senior policy adviser at NCRC. In January 2021, the company was fined $390 million for Bank Secrecy Act compliance violations, Hill added.
"Banks with Capital One's history of illegal and negligent behavior should not be allowed to acquire even more market power when they clearly have not addressed longstanding compliance issues," Hill said.
Hill also described an increase in debt collection lawsuits as "highly predatory" because customers rarely have legal representation or are aware of the suits, so more than 70% of the suits yield default judgments.
"Capital One's filing of thousands of debt collection lawsuits raises a serious compliance question, as lenders are required to consider a customer's ability to meet minimum payments before originating credit lines or increasing them," Hill said. "Capital One's high interest rates make it more difficult for borrowers to repay and more likely to fall into persistent debt where they are charged more in interest than they paid back towards the debt they originally took out."
House Financial Services Committee Ranking Member Maxine Waters (D-Calif.) recommended rejecting the merger, citing rising credit card fees and vertical integration concerns.
"If Capital One were to control its own credit card network, it could influence the multiple points of the marketplace by setting prices for credit card consumers and the merchants that swipe their cards," Waters said.
More opposition came from Patrick Woodall, managing director for policy at Americans for Financial Reform, a nonprofit coalition consisting of more than 200 consumer, civil rights, labor, business and investor organizations.
"It would be irresponsible for the regulators to approve this merger after Capital One has repeatedly broken its promises made to secure previous mergers," Woodall said. "It shut down two-thirds of its branches after promising to maintain its geographic footprint. It stopped making home purchase and home improvement mortgages after promising to maintain service levels."