WASHINGTON —
Capital One's bid to acquire Discover, a deal that would create the largest credit card company in the country, has faced political backlash from a number of Democratic lawmakers, most recently Senate Banking Committee chair Sherrod Brown, D-Ohio.
"The proposed merger between Capital One and Discover could create a new financial conglomerate while potentially limiting consumer choice for credit products and delivering unclear outcomes for small businesses," said Brown, who stopped short of calling on regulators to reject the deal, in a letter to the Office of the Comptroller of the Currency and the Federal Reserve on Friday. "Regulators and the public must understand those implications before any potential approval."
House Financial Services Committee ranking member Maxine Waters, D-Calif., has been even more forceful in her opposition to the deal, going to far as to
"I don't recall in my near 20 years of doing this, another time when a member of Congress testified at one of the regulatory hearings," said Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition, who also testified against the deal at the hearing. "And so I think in a lot of ways, the concern that you've heard expressed has been unprecedented."
Brown and Waters' comments follow similar ones from other lawmakers — including one Republican — that broadly criticize or oppose the deal. Senate Majority Leader Chuck Schumer
"Another day, another merger that would further consolidate our markets," he said.
Sen. Josh Hawley, R-Mo., earlier this year directly asked that the Department of Justice block the deal.
"This is destructive corporate consolidation at its starkest," he said. "If consummated, this merger will create a new juggernaut in the credit card market, with unprecedented powers to extort American consumers."
That said, the deal is not without its supporters in Congress — and in the Democratic Party. Sen. Mark Warner, D-Va., a member of the Senate Banking Committee, joined other lawmakers from Virginia in a letter that asked the Fed and OCC to weigh the "positive impact that Capital One has made" in the state.
"Proposed mergers and acquisitions between financial institutions require a thorough and fair review," the lawmakers said. "As your agencies evaluate the proposal, we ask that the Federal Reserve and OCC appropriately consider the contributions that Capital One has made to Virginia."
In a statement for American Banker, Andrés Navarrete, an executive vice president at Capital One and head of external affairs, said that more than 120 individuals spoke in support of Capital One and Discover at a community benefits hearing hosted earlier this month.
"We look forward to continued engagement with our key stakeholders and demonstrating the positive benefits that Capital One and Discover will collectively bring to consumers, partners, and the community," he said.
Most Republicans who've commented on the deal have said they support the merger. Most recently, a group of House Republicans led by Rep. Scott Fitzgerald of Wisconsin that includes Reps. Andy Barr of Kentucky, French Hill of Arkansas and Bill Huizenga of Michigan, asked that the Fed 'promptly' consider the deal.
"We trust, in the interest of preserving agency independence, that the Federal Reserve will appropriately discount the vacuous and politicized arguments that the merger and acquisition evaluation process is a 'rubber stamp,'" the lawmakers said. "As well, we urge you to push back on the increased politicization of federal banking regulation and merger and acquisition review policies during the Biden administration."
Even with the deal taking a more overtly political valence, the deal hasn't faced the same intensity as other similarly large deals. For example, the merger of BB&T and SunTrust in 2019 — which created Truist — received a hearing in the House Financial Services Committee.
"The question is, will we go one step further? Will Sherrod Brown hold a hearing?" Van Tol said. "He's expressed concern, but has stopped short of full-blown opposition."
Regulators will consider a number of factors when weighing the deal, including the community impact, which includes the comments of the lawmakers. While opposition or support for a bank deal in Congress is not a formal part of the merger review process, the Capital One-Discover deal is happening amid a volatile election year and the Biden administration is
"What's happened in the past is a regulator will hear that testimony and they'll go ahead and approve over the objections of the public interest groups and the concerned lawmakers," said Jeremy Kress, an assistant professor of business law at the University of Michigan and recent advisor to the DOJ on bank merger policy. "It remains to be seen whether these regulators will continue on with that standard operating procedure, or whether they'll take a different course of action."
Given the impact to the credit card market, Kress said that there's "reasons to believe that the DOJ might have stronger views on this deal than a traditional bank merger."
"The wild card here to me is the Department of Justice," he said. "We don't have precedent for what the DOJ might do in a situation like this."
Isaac Boltansky, managing director at BTIG, said that any uncertainty around approving the deal from regulators' perspective will likely center on the credit card market.
And in the middle of a tumultuous election cycle, the deal is still more likely to be approved should a Republican win the White House, given the Biden administration's DOJ actions on antitrust, despite former President Donald Trump's pick of the banking committee conservative populist Sen. J.D. Vance, R-Ohio, as his running mate, Boltansky said.
"Competition policy is now inherently political, and this deal is likely subject to the political winds," he said.
