capital ones $35.3 billion acquisition deal Discover is far from complete.
But consumer advocates and some lawmakers are already raising questions about how the proposed merger could affect credit card users, many of whom already have high interest rates. and under pressure from record debt.
Sen. Elizabeth Warren (D-Massachusetts) has long supported stronger financial regulation. called on federal authorities to block the deal.
“The @CapitalOne and @Discover merger threatens our financial stability, reduces competition, and increases fees and the cost of credit for American households,” said Warren, who also chairs the Senate Banking and Economic Policy Subcommittee. I guess so,” he posted to X.
Industry groups and experts have warned that the shrinking credit card market, which is dominated by a handful of large companies, is likely to put pressure on customers.
“We have to worry about the functioning of the credit card market in general, and this merger will probably elevate that even more,” said the director of financial services at the Consumer Federation of America, a national network of consumer advocacy groups. , said Adam Last.
Analysts generally say the merger has a reasonable chance of gaining regulatory approval, but “will face significant headwinds from the U.S. government, which is highly skeptical of the merger.” [and] We are concerned about the challenges facing consumers in an election year,” Isaac Boltanski, director of policy research at global financial services firm BTIG, said in a statement.
But blocking the partnership could be seen as helping credit card giants Visa and Mastercard. Some policymakers criticize it as a duopoly. It needs a realignment from its more serious rivals.
Visa and Mastercard both saw sales increase 11% and 12.5%, respectively, from the end of 2022 to the end of last year, thanks to strong consumer spending. According to the report, the purchase value of the four major credit card brands – Visa, MasterCard, American Express, and Discover – will exceed $10 trillion in 2023, an increase of 6.4% from the previous year. nilsson report.
The top 30 credit card companies account for about 95% of Americans’ credit card debt, according to BTIG estimates, and could face a growing backlash over competition concerns.
The last one was nodding. Last week’s report A study by the Consumer Financial Protection Bureau found that 25 large credit card issuers already charge customers 8 to 10 percentage points higher interest rates than smaller banks and credit unions.
“All of these reasons point to some sort of imbalance that favors the large credit issuers,” Rust said. “It has to do with marketing budgets, the ability to get your brand in front of consumers on TV and in the mail.”
If the deal goes through, Rust and others warned that customers could have even fewer options shopping around for the best credit card.
“More competition is generally better, so consumers always want to have more choice,” said Matt Schultz, chief credit analyst at LendingTree. However, “if Capital One realized there was a lot of overlap between what they had and what Discover offered, and they wanted to integrate the two rather than keeping them as separate brands. , it is possible that some of those offers may end up being reduced,” he said.
The average interest rate on credit cards in the U.S. is 24.61%, the highest since the credit market began tracking monthly interest rates in 2019, according to LendingTree. The New York Fed announced earlier this month that credit card debt was in “severe delinquency.” Jumped from 4% to over 6% From the last quarter of 2022 to the same period last year, total consumer debt reached $17.5 trillion.
The National Community Reinvestment Coalition, an advocacy group aimed at funneling private investment to underserved communities, also quickly criticized the merger.
“Given the requirement that the merger benefit not only insiders but also the general public, it is very difficult to imagine how federal regulators would allow Capital One to acquire Discover.” CEO Jess Van Tol said in a statement Tuesday. “Given the vertical integration of Capital One’s credit card lending and Discover’s credit card network, this transaction also raises significant antitrust concerns.”
Representatives for Capital One and Discover did not respond to requests for comment. The credit card industry has pushed back against accusations that it is not competitive enough.banking industry association said last week in response to a CFPB report. Borrowers have a wide range of card terms, benefits, and features to choose from.
Experts predict it will take at least a year for the merger to close, and it could be even longer before the full impact on consumers becomes clear.
The Office of the Comptroller of the Currency, the financial industry watchdog, moved last month to step up its review of the proposed combination. This could raise more hurdles for Capital One and Discover by potentially involving more parties in the vetting process, including local community groups in the various cities in which both companies operate. said Mr. Last.
The Biden administration has increased scrutiny of large mergers and acquisitions, but last spring’s failures at Silicon Valley Bank and First Republic Bank have focused special attention on the banking sector. The Justice Department said it was focused on preventing “excessive market power” as it worked with banking regulators to review the transactions.
If the Capital One-Discover deal is not blocked, interest rates on some credit cards could be lower by the time it closes, according to the Federal Reserve. Interest rate cuts are expected to begin later this year. But Greg McBride, chief financial analyst at Bankrate, said borrowers shouldn’t wait to pay off existing high-interest debt. “Credit card debt will continue to be costly regardless of who acquires whom,” he said.
If the merger goes through, there could be a silver lining – a reward – for customers of both companies.
Card issuers like Capital One are advocating this proposal. credit card competition law This would require merchants to use at least two card networks to process card transactions, significantly increasing costs and requiring cuts to credit card rewards programs.
LendingTree’s Schultz said acquiring Discover would give Capital One “opportunities for additional revenue and exposure,” which could offset potential cost increases and lead to generous fee financing. said.
