Senator Elizabeth Warren of Massachusetts has called on the Justice Department to intervene against Capital One’s proposed $35.3 billion acquisition of Discover Financial Services. In a letter addressed to Gail Slater, the head of the department’s antitrust division, Warren expressed her concerns about the potential risks of the merger, particularly in light of historical events where consolidation led to institutions deemed “too big to fail,” such as during the 2007-08 financial crisis.
Warren noted that the Department of Justice (DOJ) has a 30-day window to challenge merger applications once they are approved by banking regulators. The Federal Reserve and the Office of the Comptroller of the Currency granted their approval on April 18, which led Warren to argue against this decision in a later correspondence, urging a reconsideration.
According to reports, Slater previously determined that there was insufficient evidence to oppose the Capital One merger legally. However, Warren has insisted that the DOJ should consider using its legal framework and the updated merger guidelines to block the deal. She indicated that the merger could significantly reduce competition in an already concentrated market, particularly impacting credit card users with low creditworthiness who might face higher interest rates post-merger.
Warren highlighted disparities in interest rates, advocating that Discover currently offers better rates to borrowers with lower credit scores compared to Capital One. She asserted that if the merger proceeded, the competition which enables these favorable rates may disappear, leading to increased financial strain on families with limited options.
The senator emphasized the merger’s likely consequences on market concentration, noting that Capital One’s market share would rise above 30%, severely impacting the Herfindahl-Hirschman Index (HHI), a key indicator of market competitiveness. She reiterated that historical antitrust rules would classify the merger as presumptively illegal, raising concerns about the impact on competition and consumer choice.
Moreover, Warren pointed to the potential manipulation of debit card interchange fees in light of the merger, given Discover’s dual role as both a card issuer and network. This shift could grant Capital One the ability to circumvent existing fee limitations, suggesting that such a partnership could lead to increased costs for merchants and consumers alike.
The senator concluded by arguing that allowing Capital One to absorb Discover would reduce innovation in the credit card market, citing previous instances where existing competition led to better rewards for consumers. As the DOJ presently engages in lawsuits aimed at promoting competition, Warren asserts that now is the time to ensure the playing field remains equitable for all players in the financial sector.
This situation illustrates the ongoing challenge of balancing market consolidation with the need to maintain competitive practices that protect consumers, especially within crucial financial services. The outcome of this proposed merger could heavily influence the landscape of credit card offerings and pricing for years to come.