WASHINGTON — Capital One Financial Corp. Tuesday will announce plans to invest $180 billion over 10 years in low and moderate-income communities if its deal to acquire online banking business ING Direct USA goes through as planned, part of an effort to ease community groups' opposition to the deal.
Company officials plan to unveil the commitment at a hearing the Federal Reserve is holding Tuesday in Washington, to allow consumers and community groups to comment on the proposal.
"We want to reassure all the consumers, small businesses and communities we serve of our continuing and substantial commitment to provide products and services that will continue to meet their needs," a Capital One spokeswoman said in a statement.
The move comes as the bank faces a chorus of complaints over its plan to buy ING Direct USA. Critics argue that Capital One should not be allowed to expand without taking significant steps to improve the underserved communities within its business footprint.
It's unclear whether the $180 billion commitment, which will go toward making more auto and home loans in low-income areas and providing credit to farms and small companies starting in 2012, will allay critics' concerns.
Capital One is in new regulatory territory with its $9 billion plan to buy ING Direct USA. The deal, which would make the McLean, Va., bank the fifth-largest U.S. bank by deposits, is the first acquisition the Fed is reviewing under new laws requiring regulators to judge whether a bank acquisition would create a complex megabank whose failure would cripple the financial system.
The National Community Reinvestment Coalition's opposition goes beyond community development concerns. It argues that the bank's proposal to acquire ING Direct, as well as the bank's plan to acquire HSBC's credit card business, undermines the 2010 Dodd-Frank financial law's goals to make the financial system more stable.
"These acquisitions present cross-jurisdictional issues and an emerging potential threat to the stability of the U.S. financial system," NCRC President John Taylor said in a Sept. 1 letter to regulators.
The group is particularly concerned about the bank's unwillingness to focus more on mortgages. Capital One co-founder and Chief Executive Richard Fairbank has long said he is wary of mortgage lending because he argues the risk is mispriced. Mortgage interest rates are based on the value of the collateral, while credit cards rely solely on the borrower's ability to pay. Capital One ditched Greenpoint Mortgage, a lender focusing on so-called "Alt-A mortgages" that are made with less documentation than Fannie Mae and Freddie Mac required before the worst of the mortgage meltdown and weathered the financial crisis considerably better than many mortgage lenders, despite its sizable subprime lending business.
The NCRC argued in a complaint filed in June with the U.S. Department of Housing and Urban Development that Capital One won't make mortgages to borrowers with credit scores below 620, commonly considered subprime, for loans guaranteed by the Federal Housing Administration. That restriction, the NCRC alleged, violates the Equal Credit Opportunity Act because it adversely impacts minorities.
However, Capital One says it has already agreed to lower the credit scores it would consider for mortgage applications to 580.
The bank Tuesday will tout its ING plan as one that will help communities and create jobs. It will dispute claims that the deal would create a bank that could topple the financial system. The firms are not involved in trading derivatives, writing credit default swaps or other complex financial activities that proved problematic during the crisis, a company official will say.
Also, Capital One plans to give ING Bank USA account holders access to a variety of products — including fixed-rate home mortgage loans and a broad network of automated teller machines, and it plans to continue offering ING Bank's savings accounts with no minimum balance and no monthly fees.
"Capital One is better positioned than any other U.S. bank to take on this business, thereby enhancing the safety and soundness of both institutions and more effectively deploying ING Direct's deposits to the advantage of consumers, communities and the economy, at large," Capital One General Counsel John Finneran said in his prepared statement. "We are confident that the record fully supports approval of this acquisition."
