Several Congressional Democrats are now urging President Joe Biden's administration to block the proposed merger of Capital One and Discover Financial Services, warning that approving the deal would saddle consumers with high fees.
Thirteen Congressional Democrats, led by Sen. Elizabeth Warren, D-MA, argued that the $35.3 billion merger-announced last week-would only consolidate the credit card market, limit banking and credit card choices for consumers, and raise the fees.
"This merger is bad for consumers," the group said in a letter to Michael Barr, the vice chair for supervision of the Federal Reserve Board of Governors, and acting Comptroller Michael Hsu.
"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," the letter further read.
In addition, the lawmakers also suggested that Capital One had a "concerning history of mistreating consumers" while Discover had "a record of compliance failures." No further details about both cases were cited in the letter.
Discover had previously been the subject of a class action lawsuit where it was alleged that some of the company's current or former executives failed to meet risk management and compliance procedures. The lawsuit also alleged that Discover failed to comply with applicable student loan servicing standards, misclassified certain credit card accounts, overcharged customers, and failed to stem its ballooning credit card delinquency rate.
"This merger, on its face, has significant deficiencies," Warren and the other lawmakers wrote in the letter.
Behind the Merger
In early February, Capital One announced that it would acquire Discover in a $35.3 billion, all-stock deal. If the merger pushes through, Capital One shareholders will own 60% stake, while Discover shareholders will own 40%.
Capital One said it believes the deal will close in late 2024 or early 2025, pending approval from regulators such as the Treasury Department and the Federal Reserve.
If approved, the merger would unite Capital One's banking and card businesses with similar assets at Discover. This would include the latter's payment network, which would allow Capital One to facilitate payments between merchants and card issuers when customers make a purchase. It would also allow Capital One to collect the fees charged in the transactions.
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