Democratic chorus against proposed Capital One-Discover merger grows louder

The proposed merger between credit card companies Capital One and Discover has Democrats on the House Financial Services Committee up in arms about corporate consolidation and what they see as lazy regulation of the financial sector.

Sixteen Democrats on the House Financial Services Committee, including ranking member Maxine Waters (D-Calif.), penned a letter to the heads of the major financial regulatory agencies Wednesday, accusing them of “rubber stamping” big mergers and falling behind on updating their merger guidelines, a move requested by President Biden.

“We strongly encourage your agencies to put away the rubber stamp and promptly finalize robust merger review procedures before all we are left with is an oligopoly of megabanks to serve our constituents,” Waters and fellow Democrats wrote.

The latest Democratic initiative regarding the possible merger follows a similar letter Sen. Elizabeth Warren (D-Mass.) and other House Democrats sent over the weekend, which made the same case and called for regulators to block the sale outright.

“To protect consumers and financial stability, we urge you to block this merger and strengthen your proposed policy statement to prevent harmful deals in the future,” Warren and her co-authors wrote.

Financial regulators have been under fire since they dropped the ball last year, failing to spot run-of-the-mill interest rate exposure problems with Silicon Valley Bank (SVB) and Signature Bank, which nearly led to the banking sector’s collapse. SVB CEO Greg Becker essentially served as one of his own regulators at the time, sitting on the board of the San Francisco Fed.

“Weakness in supervision and regulation must be fixed,” Federal Reserve vice chair for supervision Michael Barr said in a postmortem analysis of the failures.

JPMorgan Chase CEO Jamie Dimon, who in coordination with the Treasury Department helped to bail out another failing bank following SVB’s collapse, said this week he thought the Capital One-Discover merger should be permitted by regulators.

“I think companies should be allowed to do and innovate and grow and merge,” he said, speaking with the CNBC television network.

The merger would make Capital One the sixth-largest bank and single biggest credit card issuer in the country, continuing a longer term trend of consolidation in consumer credit providers.

From 1994 to 2022, the top 10 largest credit card issuers increased the loans they held from about 57 percent of the market to 82 percent, according to the Consumer Financial Protection Bureau.

Credit card debt for U.S. consumers dipped after the pandemic but has since rebounded to an all-time high above $1 trillion. That follows a longer term trend over the past several decades showing an expansion of credit card and household debt as wages have stagnated or increased only modestly.