$35B Merger Threatens Sky-High Consumer Fees

Key Takeaway

• The proposed $35 billion Capital One-Discover merger would create the largest credit-card issuer, raising concerns over higher consumer fees and reduced small-business lending.
• Research indicates the biggest credit-card companies, including Capital One, charge significantly higher rates than smaller banks, potentially costing consumers up to $500 more annually.
• The merger poses additional risks by combining a major credit-card issuer with its own payment network, potentially allowing for excessive merchant fees and further market dominance.

Capital One-Discover Merger: A Threat to Consumers and Small Businesses

Capital One and Discover are eyeing a $35 billion merger that could potentially create the largest credit-card issuer in the world. This deal, if approved, would not only consolidate power in the hands of a few corporate executives and investors but also pose significant risks to American families and small businesses. The merger would allow Capital One to operate its own payment network, giving it unprecedented control over credit-card transactions and potentially leading to exorbitant fees for consumers and businesses.

History of Regulatory Oversight

Regulators have historically approved anticompetitive mergers in the banking sector, leading to increased costs for consumers, reduced services, and higher risks in the economy. President Biden has taken a more cautious approach to mergers that could harm consumers and the economy, signaling a shift from the laissez-faire attitude of the past. The Capital One-Discover merger represents a test for regulators to uphold consumer protection and prevent the creation of a financial behemoth with unchecked power.

Consumer Impact and Risks

The merger between Capital One and Discover could result in higher fees for consumers, as larger banks tend to charge significantly higher interest rates than smaller institutions. The Consumer Financial Protection Bureau's research shows that consumers could face up to $500 in additional costs annually due to higher fees imposed by major credit-card companies. Capital One, known for its high credit-card rates and aggressive debt-collection practices, stands to benefit significantly from the merger, potentially extracting billions in extra profits from merchant fees.

Regulatory Response and Call to Action

Senator Elizabeth Warren has raised concerns about the Capital One-Discover merger, highlighting the risks it poses to consumers, small businesses, and communities. The creation of a dominant credit-card issuer with its own payment network could lead to monopolistic practices, forcing merchants to accept higher transaction fees and limiting consumer choice. Regulators must carefully evaluate the implications of this merger and consider blocking it to prevent further harm to consumers and the economy.

Management Quotes

• Capital One's CEO:

  "The point of this merger is to put the bank together with a payment network so the resulting giant can extract higher profits."