Consumer Groups Warn Fed on ‘Dangerous’ Merger Between Capital One and Discover

A coalition of more than a dozen advocacy groups have urged the Federal Reserve and Department of Justice to block Capital One's $35 billion takeover of Discover Financial Services, warning that the combination of the two companies is "dangerous."

In a letter sent to the Fed, the coalition warned that Capital One would be able to hike fees after closing the acquisition of Discover. This would then damage competition and create a "further concentrated risk" in the U.S. financial system.

"The scale and scope of harms represented by this transaction are enormous The threat is grave, not just to the dynamism of the economy and the stability and competitiveness of the financial services sector, but to American businesses and the health of consumers across the country," they wrote in the letter, as first reported by The Guardian.

Jesse Van Tol, president and CEO of National Community Reinvestment Coalition-one of the letter's signatories-called Capital One a "notorious bad actor" and said regulators should never allow the takeover.

"Capital One is a notorious bad actor, even at its current size, and should not be allowed to further concentrate market power," he wrote.

Other signatories of the letter included the American Economic Liberties Project, Public Citizen, and Americans for Financial Reform.

Democrats Also Warned About Capital One-Discover Merger

The letter from the coalition comes over a week after 13 Congressional Democrats, led by Sen. Elizabeth Warren, D-MA, urged the Biden administration to block the proposed merger between Capital One and Discover. In a letter to Michael Barr, the vice chair for supervision of the Federal Reserve Board of Governors, and acting Comptroller Michael Hsu, the lawmakers argued that the merger would only consolidate the credit card market, limit banking and credit card choices, and raise fees.

Capital One expects the deal to close in late 2024 or early 2025. If the deal pushes through, Capital One would enable Discover, one of the biggest payment-processing networks in the country, to compete against larger networks such as Visa, MasterCard, and American Express.

The effects of the merger are still up for debate. The merger could make the payment processing space more competitive, forcing issuers to compete to provide better rewards to credit card holders, Matt Schulz, chief credit analyst at LendingTree, told Fortune.

That being said, Schulz noted that there is still the possibility that the merger would reduce competition among issuers, which will lead to higher prices for consumers.