March 08, 2024

ICYMI: In WSJ Op-ed, Warren Calls on Regulators to Block Capital One’s Merger with Discover

“Allowing a giant bank to run its own network to process billions of credit-card transactions would create a new Wall Street monster with greater power over American families and small businesses.”

“Bank regulators should say no.”

Op-Ed in Wall Street Journal

Washington, D.C. – Today, U.S. Senator Elizabeth Warren (D-Mass.) published an op-ed in the Wall Street Journal calling on federal regulators to block Capital One’s merger with Discover. The Senator points out that if federal regulators allow this deal to go through, it would create the largest credit-card issuer in the country and another too-big-to-fail bank that could use its power to jack up prices on consumers.

Read the full op-ed here and below:

Capital One recently proposed merging with Discover. If the deal passes government scrutiny, the company would become the largest credit-card issuer in the country, making it yet another too-big-to-fail bank.

This deal is about more than the danger posed by another big bank. Allowing a giant bank to run its own network to process billions of credit-card transactions would create a new Wall Street monster with greater power over American families and small businesses. Bank regulators should say no.

First, a little history: For years, regulators have rubber-stamped anticompetitive deals, letting big banks gobble up competitors at will. Weak regulators permitted the kinds of mergers and thin oversight that led to the financial crash of 2008 and the subsequent taxpayer bailout. President Biden has taken a different approach, tapping the brakes on mergers that drive up costs for consumers, lay off workers and increase risks in our economy.

Capital One and Discover appear to have placed a $35 billion bet that regulators will again look the other way—or that Donald Trump will have a chance to approve the deal if he returns to office.

This may be a sweet deal for a handful of corporate executives and investors. It’s a bad deal for everyone else. It’s bad for consumers because when big banks get bigger, they dismantle customer service and slam Americans with junk fees. It’s bad for small businesses because bigger banks shrink small-business lending. And it’s bad for communities because after mergers banks often shut down local branches and fire workers.

Adding additional risk, the Capital One-Discover deal would create the biggest credit-card issuer in the world. When it comes to squeezing consumers, size matters. New research by the Consumer Financial Protection Bureau shows that regardless of a person’s credit score, the biggest credit-card companies charge significantly higher interest rates than smaller banks. The fees amount to as much as $500 a year in added costs for consumers. That’s money that could be going toward rent or car repairs.

Capital One’s credit-card rates are already among the highest in the nation. The company took home an average of more than $8 billion in profit in each of the last three years. Capital One also files more debt-collection lawsuits against consumers than any other credit-card lender.

The size of the resulting bank and excessive fees associated with credit-card operations are reasons enough to block the Capital One-Discover merger. Yet this deal poses an additional layer of risk by giving a giant credit-card issuer its own payment network.

When you go to a store and pay with a credit card, the money you spent is transmitted through a payment-network company. Visa and MasterCard are the biggest networks, followed by much smaller American Express and even smaller Discover. The payment network keeps a cut of what you pay and sends a chunk of that money—usually between 1% and 3%—to the banks and networks involved in the transaction. Whatever is left goes to the store where you made your purchase. Visa and MasterCard already squeeze small businesses with fees, but they don’t also own a big bank.

If Capital One buys Discover, it would instantly become the biggest credit-card issuer in the country, with more than 165 million cards in circulation used to make more than $800 billion in purchases in 2023. Since it would be both credit-card issuer and network, Capital One could profit twice on each purchase and potentially force stores to pay for the bigger cut. No shop could afford not to take a credit card held by hundreds of millions of customers. What, then, would the new Capital One network charge these merchants—4%, 6%, 10%? Who knows? If the small businesses can’t walk away, Capital One can charge whatever it wants.

This isn’t mere speculation. Capital One’s CEO has already said that the point of this merger is to put the bank together with a payment network so the resulting giant can extract higher profits. Capital One told its investors that if the merger goes through, it could make an extra $1.2 billion every year off new merchant fees. Sure, Walmart might negotiate for a lower fee, but every small and medium-size business in the country will get slammed. Every consumer will see upticks in prices for everything from diapers to school clothes.

Over and over, the American consumer has been ripped off by giant banks and credit-card companies. Over and over, the American taxpayer has been called on to come in after a banking disaster and bail out the financial system. Regulators must stave off the wreckage by blocking this dangerous merger.