UPDATE: This story includes information from the regulators’ enforcement actions and merger approval orders, as well as reaction from outside observers and more background about the arguments both for and against the deal.
Capital One Financial’s contentious acquisition of Discover Financial Services has won the regulatory approvals it needs, clearing the path to create the largest credit card lender in the country.
The Federal Reserve Board and the Office of the Comptroller of the Currency both said Friday they green-lit the $35 billion deal. The approvals followed more than a year of review, during which
The agencies’ approvals were the
“We understand the critical importance of a strong and competitive banking system to our customers and our economy, and we appreciate the thoughtful and diligent engagement of our regulators as they thoroughly reviewed this deal over the past 14 months,” Capital One Chairman and CEO Richard Fairbank said in a prepared statement Friday.
But the regulatory OK comes with a price. The Fed — in coordination with the Federal Deposit Insurance Corp. — hit Discover on Friday with multiple enforcement actions and nearly $1.5 billion in fines and restitution costs. The deal is also contingent on the resolution of the issues addressed in the consent orders, which related to Discover overcharging merchants on certain interchange fees for 15 years.
The Fed issued a consent order and a $100 million fine. The bigger financial blow came from FDIC, which hit Riverwood, Illinois-based Discover with a $150 million penalty and an order to distribute at least $1.225 billion in restitution to the affected merchants. The FDIC also amended and restated a 2023 consent order with Discover that relates to the overcharging matter.
Still, the blessings from the Fed and the OCC marked a major victory for Capital One, which last year bet big on the deal getting approved, notwithstanding a tougher tone on bank mergers from the Biden administration.
The OCC said in a press release Friday that it conducted a “fulsome review” of the merger application to ensure it met statutory and regulatory requirements.
“Today’s announcement reflects the OCC’s careful analysis of the effect of the merger on communities, the banking industry, and the U.S. financial system,” the OCC said in a press release.
Acting Comptroller of the Currency Rodney Hood said in a prepared statement: “The OCC is committed to a regulatory framework that expands access to financial services for consumers, businesses and communities.”
The Fed said in a separate release that it evaluated “the financial and managerial resources of the companies, the convenience and needs of the communities to be served by the combined organization, and the competitive and financial stability impacts of the proposal.”
The OCC received more than 1,300 written comments on the merger, and testimony from nearly 150 members of the public at a public meeting last summer. Of the comments, more than 90% expressed opposition to the deal. The Fed received more than 6,000 comments — orally, in writing, or both — of which a similar portion, around 90%, opposed the transaction. However, the Fed noted that most of the adverse written comments were essentially identical form letters that expressed general concerns.
Capital One has said that it will
At a public hearing last July, many speakers expressed support for the deal. Richard Sullivan, a Democratic member of the Virginia House of Delegates from the district adjacent to Capital One’s headquarters, described the bank as a “wonderful corporate citizen.”
Sherry Goldstein, vice president of operations at the New York-based Fortune Society, which helps formerly incarcerated people reintegrate into society, said at the hearing that Capital One was “an excellent partner.” The McLean, Virginia-based bank helped Goldstein’s group continue to build housing for people with criminal legal histories, formerly unhoused people and low-income residents.
Critics who spoke at last summer’s hearing included National Community Reinvestment Coalition President and CEO Jesse Van Tol, who said that the community development plan wouldn’t create “sufficient” public benefit.
“To fix that, Capital One would need to make the plan an order of magnitude bigger and consider taking Discover’s innovative housing and small-business finance programs nationwide at scale, along with many other changes,” Van Tol said at the time.
Other critics have argued that the massive combined company would limit credit card options, or raise costs, for subprime borrowers. Put together, the subprime card businesses of Discover and Capital One make up about one-fourth to one-third of the market.
A key rationale for the deal — and what Fairbank has called “the holy grail” — is Capital One’s acquisition of Discover’s payments infrastructure. Capital One, which has long had to use industry titans Visa and Mastercard to process customer payments, will now have access to its own, albeit much smaller, network. Capital One has maintained that the acquisition will make Discover’s payments network a stronger competitor.
“The combination of our two great companies will increase competition in payment networks, offer a wider range of products to our customers, increase our resources devoted to innovation and security, and bring meaningful community benefits,” Michael Shepherd, interim CEO and president of Discover, said in a prepared statement Friday.
The deal’s opponents have argued that the merger will fail to result in meaningful changes to the payments market, where Capital One will be competing with Visa and Mastercard. Critics have also argued that access to the Discover network will allow Capital One to skirt certain interchange-fee rules.
At the beginning of April, the Department of Justice told the OCC and the Fed that it hadn’t found grounds to block the deal, according to news reports. The DOJ, which conducts antitrust reviews, doesn’t have the authority to veto the acquisition, but bank regulators take its recommendations into account.
Still, the deal’s opponents, who include Sen. Elizabeth Warren, D-Mass., and Rep. Maxine Waters, D-Calif., have held out hope that state attorneys general will file a lawsuit in an effort to stymie the merger. Last fall, New York Attorney General Letitia James
“The feds got this one wrong,” Van Tol said Friday in a prepared statement. “So it falls to state Attorneys General to intervene against the harmful, anticompetitive Capital One-Discover merger.”
Shayna Olesiuk, director of banking policy at the advocacy group Better Markets, said in a statement Friday that the merger is “going to cost consumers and endanger financial stability.”
She added that the acquisition allows two banks “with egregious histories of inadequate management, excessive risk-taking, and repeated illegal behavior” to grow larger.
Jeremy Kress, an associate professor of business law at the University of Michigan, said Friday in posts on X that Biden-era regulators should have blocked the deal months ago.
“The Fed approached this deal like a traditional bank merger that warranted traditional bank merger analysis,” Kress wrote. “This merger is very much nontraditional, and the Fed’s ossified bank merger framework proved basically useless.”
The deal previously got the sign-off of the Delaware State Bank Commissioner in December.