WASHINGTON — Senate Banking Committee ranking member Elizabeth Warren is pressing the Department of Justice to block the Capital One deal to acquire Discover, according to a letter shared with American Banker.
Bank regulators
Tuesday's letter is the latest bid by the Democratic senator from Massachusetts
The DOJ has the ability to block bank mergers, even if they are already approved by the banking agencies, Warren wrote, citing the Clayton Act, an early 20th century law that prohibits anti-competitive deals. The DOJ may, at its discretion, sue to stop the deal within 30 calendar days of the banking agencies' approval, she said.
The Trump administration is taking a business-friendly approach to regulation, including bank oversight, where it has promised to reduce burdens for the industry. An exception to that might be in merger policy, where a populist-leaning wing of the GOP has taken a more negative — although not aggressive — stance against
"For many, an important question that arose was less about the merits or demerits of the regulations that followed in the wake of 2008, and more about how these financial institutions became 'too big to fail' in the first place," said Assistant Attorney General Gail Slater, to whom Warren's letter is addressed, in April. "Relatedly, many questioned whether these regulations could have been avoided had these markets not become so highly concentrated."
Warren called out these remarks in her letter: "In your first antitrust address as Assistant Attorney General, you warned against consolidation that resulted in 'too big to fail banks' and culminated with the 2008 financial crisis," she said. "This transaction will reveal whether you back your words with action."
That said, the chances that Slater and the DOJ decide to block the merger are slim. The New York Times
Warren remains concerned about the impact the deal could have on the credit card market, concerns that are shared by other Democratic lawmakers as well as consumer and community advocates.
The deal would double Capital One's footprint in the subprime card loan market, where the bank and Discover currently compete, Warren said, citing research from the Americans for Financial Reform Education Fund.
"The stakes are significant: less competition among those with lower credit
scores could mean Capital One can raise credit card rates for vulnerable families with limited alternative options, which could be the difference between getting by month-to-month and entering a financial downward spiral," Warren said in her letter.
Warren also challenged the argument made by the two firms, that approving the deal would create a strong competitor to Visa and Mastercard, which Democratic lawmakers have described as having a "duopoly" over card payment.
"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 late April.
But there is little evidence to this end, Warren said.
"Even if Capital One presented verifiable claims that taking over Discover would allow it to compete with Visa and Mastercard in certain areas, which it has not, the claims would not dampen the significant competitive concerns with multiple other components of the companies' complex businesses," the senator wrote.
The DOJ should instead consider the potential harms of vertical integration in the case of the Capital One-Discover deal, Warren said.
Discover, which is not just a card issuer but also a card network, is not subject to the limit on debit card interchange fees imposed by the Durbin Amendment in Dodd-Frank, whereas Capital One is, she said. The bank would be able to, post-merger, convert cards to a system where they will be able to charge higher fees, Warren said.
Executives "highlighted to investors that a network is a 'very, very rare asset' and characterized owning a network as the 'Holy Grail'
because of how difficult it is to build new ones," Warren said.
"And in case there was any doubt about whether Capital One plans to raise swipe fees, the company told its investors that converting its debit and some credit products to Discover networks would be worth an estimated $1.2 billion," she said.
