May 12, 2025
Ms. Ann E. Misback
Secretary of the Board
Board of Governors of the Federal Reserve System
20th Street and Constitution Ave NW
Washington, DC 20551
Re: Reconsideration of Capital One – Discover Merger
Dear Ms. Misback and Members of the Federal Reserve Board:
We urge the Federal Reserve Board to reconsider your provisional order dated April 18th, 2025 to approve Capital One’s acquisition of Discover Financial Services. The approval will severely reduce competition and viable credit options available to consumers, especially consumers with non-prime credit scores, as well as increasing payment processing costs for small businesses.
The Board acted arbitrarily in declining to apply the 2023 merger guidelines adopted by the Department of Justice (DOJ) and Federal Trade Commission (FTC). Congress gave the DOJ and FTC the authority to administer antitrust laws such as the Clayton Act that prohibit mergers that may reduce competition.[i] In applying the outdated 1995 merger guidelines to the Capital One – Discover merger, the board ignored modern market realities and the impact on customers with less than prime credit scores that have less options for credit cards – as acknowledged by Capital One.[ii] Moreover, the divergence in the application of merger guidelines between federal agencies has created regulatory inconsistencies that undermine fairness and predictability for parties and stakeholders alike. Such an outcome will sow confusion and encourage tactics exploiting agency differences for future mergers.
The Board should have joined DOJ and FTC (the agencies) in analyzing the merger under the 2023 guidelines. Guideline 1 sets forth deals resulting in a single firm with a market share above 30%, combined with a Herfindahl-Hirschman Index (HHI) increase of over 100 points, results in a presumption that the merger may substantially reduce competition or create a monopoly.[iii] Americans for Financial Reform found this merger results in Capital One holding 30.6% of outstanding non-prime credit card debt, and that the HHI increased by nearly 400 points.[iv]
In the approval order, the Board does not dispute that Capital One would hold close to a third of all outstanding credit card debt, or that the HHI increased by well over 100 points. Instead, the Federal Reserve cites “confidential data from December 2023, provided by Capital One” that indicates that the HHI “would remain well below 1800.”[v] However, this ignores the HHI increase as well as the 30% market share, which is a well-established threshold for identifying concentrated markets.[vi]
Furthermore, the agencies included additional factors that have decreased competition.[vii] Specifically, the agencies list “a merger that would enable firms to avoid a regulatory constraint because that constraint was applicable to only one of the merging firms” as an example of mergers that have weakened competition in the past.[viii] The Capital One – Discover merger clearly falls into this category. Not only would Capital One have the ability to raise debit card interchange fees, it would also have a strong incentive to do so. One of the most effective ways for Capital One to encourage banks to move debit cards to their network would be by offering a higher share of interchange fees, which encourages Capital One to increase interchange fees overall.[ix] Capital One would also be able to leverage access to its extensive card network to force businesses to accept higher interchange fees. One financial services analyst estimated that Capital One’s debit interchange fee increases could cost American businesses and consumers around $800 million a year.[x] Capital One’s statement that it ”does not intend to increase any fees” while acknowledging ”external factors could impact fees” is a meaningless response to how this merger allows Capital One to avoid regulatory caps on debit interchange and raise fees on merchants that are likely to be passed on to consumers.[xi]
Finally, the recent dismantling of the Consumer Financial Protection Bureau is a significant new fact that must go into the Board’s analysis in evaluating the needs of consumers and the community. The Bureau is the only agency with legal authority to regulate, supervise and enforce federal consumer laws against the merged entity.[xii] However, since January 2025, the Administration has attempted to reduce the Bureau’s workforce by 90 percent: the supervision workforce from 487 to 50, the enforcement workforce from 248 to 50, and the overall agency workforce from 1,690 to 207.[xiii] Such a drastic reduction will make it close to impossible for the Bureau to be an effective watchdog for consumers and effectively supervise and monitor the business practices of the largest credit card lender, should the Order become final.
We urge the Board to reconsider its provisional approval order. The application of the 1995 Merger Guidelines by the Board creates arbitrary and unpredictable outcomes for consumers and stakeholders, encourages forum shopping, and creates confusion. In addition, the attempted shutdown and incapacitation of the Consumer Financial Protection Bureau will lead to lack of enforcement against the merged entity on behalf of consumers and businesses.
Sincerely,
American Economic Liberties Project
Americans for Financial Reform Education Fund
National Community Reinvestment Coalition
Public Citizen
[i] 15 U.S. Code § 18; https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4745310.
[ii] “CONA noted that its business practices must be seen through the lens of its decision to serve LMI and subprime consumers that many other lenders are unable or unwilling to serve.” OCC Conditional Approval of Capital One – Discover. April 18, 2025. Appendix Page 6. Available online at https://www.occ.gov/news-issuances/news-releases/2025/nr-occ-2025-36a.pdf
[iii] Merger Guidelines U.S. Department of Justice and the Federal Trade Commission. Pages 5-6. Available online at https://www.ftc.gov/system/files/ftc_gov/pdf/2023_merger_guidelines_final_12.18.2023.pdf
[iv] Analysis conducted by Americans for Financial Reform. Total outstanding general purpose credit card loans from Federal Reserve Bank of New York. Center for Microeconomic Data. Household Debt and Credit Report. Q4 2023. Issuer loans based on credit card loans carried as assets on Securities and Exchange Commission filings or FDIC call reports. Non-prime market based on issuers’ disclosure of higher-risk loans (typically reported as under 660 credit score, although some report under 680 or under 650). Eighteen of the 30 issuers reported non-prime lending breakdown on their SEC reports and the total reported non-prime lending from these 18 firms was divided into their total lending to determine an average of 19 percent of credit card loans to consumers with non-prime credit scores; this average was applied to the total credit card loans of issuers that did not report breakdowns and the FRB NY total loans to get individual issuer non-prime credit card lending and market size.
[v] FRB Order No. 2025-10. April 18,2025. Page 14. Available online at https://www.federalreserve.gov/newsevents/pressreleases/files/orders20250418a2.pdf.
[vi] Phila. Nat’l Bank, 374 U.S. at 364-65 (“Without attempting to specify the smallest market share which would still be considered to threaten undue concentration, we are clear that 30% presents that threat.”)
[vii] Merger Guidelines U.S. Department of Justice and the Federal Trade Commission. Pages 28-29. Available online at https://www.ftc.gov/system/files/ftc_gov/pdf/2023_merger_guidelines_final_12.18.2023.pdf
[viii] “Merger Guidelines U.S. Department of Justice and the Federal Trade Commission.” December 18, 2023. Page 29. Available online at https://www.ftc.gov/system/files/ftc_gov/pdf/2023_merger_guidelines_final_12.18.2023.pdf
[ix] “Will the Capital One, Discover merger impact the Credit Card Competition Act?” Bankrate. March 1, 2024. Available online at https://www.bankrate.com/finance/credit-cards/capital-one-discover-merger-ccca-impact/
[x] “By shifting its debit volume to Discover’s network, Capital One can charge merchants higher fees, which could lead to around $800 million of pre-tax earnings upside based on estimated debit volumes of $90 billion.” See: Marc Rubenstein, “The Third Network,” Net Interest, Feb 23, 2024, https://www.netinterest.co/p/the-third-network.
[xi] FRB Order No. 2025-10. April 18,2025. Page 52. Available online at https://www.federalreserve.gov/newsevents/pressreleases/files/orders20250418a2.pdf.
[xii] 12 U.S.C. § 5511
[xiii]Citing joint Warren Waters letter to the Board dated May 1, 2025. Available online at https://www.banking.senate.gov/imo/media/doc/Warren%20Waters%20letter%20to%20Misback%20on%20Capital%20One%20Merger.pdf and; https://federalnewsnetwork.com/workforce/2025/04/layoffs-hit-consumer-financial-protection-bureau-as-trumps-government-downsizing-continues/ ; https://thehill.com/business/5255231-trump-admin-to-cut-90-percent-of-cfpb-in-latest-layoffs-reports.
