Capital One A $35.3 billion deal to buy Discovering 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 are already under pressure from high interest rates and record debt.
Sen. Elizabeth Warren, D-Mass., a longtime advocate of tighter financial regulation, urged federal officials to block the deal.
“The merger of @CapitalOne and @Discover threatens our financial stability, reduces competition and will increase fees and credit costs for American families,” he said.
Industry groups and experts have warned against shrinking the credit card market, dominated by a handful of big players, which they say is more likely to crowd out customers.
“We should be concerned about the functionality of the credit card market in general. This merger probably makes it even worse,” said Adam Rust, director of financial services at the Consumer Federation of America, a national network of consumer advocacy groups.
While analysts generally say the merger has a decent chance of securing regulatory approval, “it will face strong headwinds from Washington, which is deeply skeptical of consolidation. [and] “We are concerned about the challenges facing consumers in an election year,” Isaac Boltanski, director of policy research at BTIG, a global financial services firm, said in a statement.
But blocking the connection could be seen as a favor to credit card giants Visa and Mastercard some politicians criticized it as a duopoly it needs a shake-up from more serious competitors.
Both Visa and Mastercard grew revenue by 11% and 12.5%, respectively, between the end of 2022 and the end of last year. strong consumer spending. The four largest card brands – Visa, Mastercard, American Express and Discover – made more than $10 trillion in purchases in 2023, up 6.4% from the previous year. The Nilson Report.
BTIG estimates that the top 30 credit card companies account for about 95% of Americans’ credit card debt, which could raise competition concerns.
Rust shook his head report last week from the Consumer Financial Protection Bureau, which found that the 25 largest credit card issuers are already charging customers eight to 10 percentage points higher interest rates than small and medium-sized banks and credit unions.
“All of these reasons point to some sort of imbalance, which favors large credit issuers,” Rust said. “It’s about their marketing budgets, their ability to get their brands in front of consumers on TV or in the mail.”
If that happens, the deal could further reduce customers’ ability to shop for the best credit card, Rust and others warned.
“Consumers always prefer more choices because more competition is generally better,” said Matt Schulz, senior credit analyst at LendingTree. But “if Capital One sees a lot of overlap between what they have and what Discover brings to the table, and they want to combine the two instead of keeping them as separate brands, you could see some of those offerings go down. ,” he said.
According to LendingTree, the average U.S. credit card interest rate is 24.61%, the highest since the credit market began tracking monthly rates in 2019. It increased from 4% to 6% From the last quarter of 2022 to the same period last year, when total consumer debt reached $17.5 trillion.
The National Community Reinvestment Coalition, which seeks to direct private investment to underserved communities, also wasted no time criticizing the merger.
“It’s hard to imagine how federal regulators could allow Capital One to buy Discover, given the requirement that mergers benefit the public as well as insiders.” CEO Jess Van Tol said in a statement Tuesday. “Given the vertical integration of Capital One’s credit card lending with Discover’s credit card network, the deal 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 on accusations that it is not competitive enough. Banking industry group He said in response to the CFPB’s report last week borrowers have many card terms, benefits and features to choose from.
Experts expect the merger to take at least a year to complete and potentially longer to see the full consumer impact.
The Office of the Comptroller of the Currency, the financial industry watchdog, moved last month to strengthen its review of proposed mergers. That could create more hurdles for Capital One and Discover, potentially involving more institutions in the investigation process, such as local community groups in the various cities where the companies operate, Rust said.
The Biden administration has stepped up scrutiny of large mergers and acquisitions, but the collapse of Silicon Valley Bank and First Republic Bank last spring has brought additional attention to the banking sector. The Justice Department, along with bank regulators, said it was focused on guarding against “excessive market power” when reviewing the deals.
If the Capital One-Discover deal is not blocked, some credit card rates with the Federal Reserve may be lower until it is completed. is expected to start lowering interest rates later this year. But borrowers shouldn’t wait to pay off their existing high-interest debt, said Greg McBride, chief financial analyst at Bankrate. “No matter who owns it, it’s going to be high-cost credit card debt,” he said.
If the merger goes through, there may be one silver lining for customers of both companies: rewards.
Card issuers like Capital One have claimed what’s on offer Credit Card Competition Act — which would require them to allow merchants to use at least two card networks to process card transactions — would increase their costs so much that they would have to limit their credit card rewards programs.
LendingTree’s Schulz said acquiring Discover would give Capital One “more revenue and leverage,” which could offset potential cost increases and help fund generous rewards.