18 Consumer Groups Oppose Proposed Capital One and Discover Merger

 

A coalition of 22 advocacy groups warned in a letter to Jerome Powell, the Fed chair; Martin Gruenberg, chair of the Federal Deposit Insurance Corp; Michael Hsu, acting comptroller of the currency; and Jonathan Kanter, assistant attorney general at the Department of Justice (DOJ), that the merger would "further concentrate risk" in the financial system and should be stopped. They urged regulators to block Capital One’s $35bn takeover of Discover. Urging the Federal Reserve and DOJ to intervene, the coalition stated that combining two of the largest US credit card companies would damage competition, and permit Capital One to hike fees after closing the acquisition, announced by the companies last month.

Signatories included the National Community Reinvestment Coalition (NCRC), the American Economic Liberties Project (AELP), Public Citizen, and Americans for Financial Reform.

In a statement, a Capital One spokesman said it had a “long history” of serving consumers and businesses with “best-in-class” products and services. “As this process moves forward, we are fully committed to engaging with consumer organizations and other stakeholders to demonstrate the significant benefits of this transaction to consumers, communities, and competition in the marketplace.”

The NCRC responded that “Capital One is a notorious bad actor, even at its current size, and should not be allowed to further concentrate market power.” Capital One is one America’s biggest banks, and a key issuer of Visa and MasterCard credit cards in the US. Discover, with 305 million global cardholders, is one of the largest card payment networks in the US.

While Capital One argues that the merger would enable it to “build a payments network that can compete” with the market’s largest players, the AELP pointed out that “Vague claims that the merger will benefit competition in payment networks are a Trojan Horse concealing the merger’s real goals: higher interchange fees, more costly credit cards, and a surge in size connoting an implicit too-big-to-fail government backstop. It might be lucrative for Capital One, but everyone else will pay.”

Capital One expects to close the deal by late 2024 or early 2025, subject to regulatory and shareholder approvals. 

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Read the March 6, 2024 Guardian article.

Read the March 6, 2024 NCRC article.

The Fed declined to comment.

Federal Reserve Proposes New Rules to Modernize CRA Regulatory Rules

On May 5, 2022, the Federal banking regulators - the Board of Governors of the Federal Reserve Board - announced proposed rules to revise and modernize the Community Reinvestment Act (CRA). The major elements are:

• Expanded access to credit, investment, and basic banking services in low- and moderate-income communities. The regulatory agencies would evaluate bank performance across the various activities they conduct and communities they regulate so that CRA is a strong, effective tool to reduce inequities in credit access. This involves the promotion of community engagement and financial inclusion, as well as emphasizing smaller-value loans and investments to have high impact and be more responsive to the needs of low and moderate-incoime (LMI) communities.
• Adaption to changes in the banking industry, including internet and mobile banking. The updating of CRA assessment areas to include activities like online and mobile banking, branchless banking, and other types.
• Providing greater clarity, consistency, and transparency. The adoption of a metrics-based approach to CRA evaluations of retail lending and community development financing including public benchmarks, to strengthen clarity and consistency. Also involved in the clarification of eligible CRA activities (e.g., affordable housing) focused on LMI, underserved, and rural communities.
• Tailoring CRA evaluations and data collection to bank size and type. In light of the differences in bank size and business types, smaller banks would continue being evaluated under the existing CRA regulatory rules, but have the option to be evaluated under the new proposed rules.
• Maintaining a unified approach. This rules proposal is the result of a unified effort by the bank regulatory agencies as well as inclusion of feedback from stakeholders.

In response to the proposed rules, the president of the Center for Responsible Lending (CRL) commented:

Federal banking regulators today issued a notice of proposed rulemaking to modernize the rules that implement the Community Reinvestment Act (CRA). This represents a significant step forward in ensuring that financial institutions address the credit needs of Asian, Black, Latino, Native American, rural and other underserved communities. The Federal Reserve Board and the Federal Deposit Insurance Corporation both unanimously approved the proposal, and they were joined by Michael Shu, Acting Comptroller of the OCC.

Low-income communities and people of color continue to be underserved by the nation’s financial system when seeking a wide range of financial services, whether for mortgages, automobile financing, or small business lending. Previous policies helped create today’s racial wealth gap by allowing lenders to use abusive and predatory lending practices for systemic exploitation and exclusion of these borrowers.

When 98 percent of US financial institutions receive passing scores in their CRA evaluations, yet the racial wealth and homeownership gaps are the same, if not wider, than they were 50 years ago, it is not enough for regulators to just tell financial institutions to ‘do better.’

The proposed rule both increases the effectiveness of CRA and enhances its implementation and compliance for banks. We look forward to working with regulators to further improve the rule as it goes through review and final adoption.

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Source: https://www.responsiblelending.org/media/bank-regulators-proposal-modernize-cra-rules. 

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220505a.htm.