Dive Brief:
- The New York attorney general’s office is investigating whether Capital One’s proposed $35.3 billion acquisition of Discover runs afoul of the state’s antitrust law.
- NY AG Letitia James’ office filed a petition Wednesday asking a state judge to issue McLean, Virginia-based Capital One an out-of-state subpoena related to her probe.
- A Capital One spokesperson said the company plans to respond to the AG’s action through legal channels. “We are well-positioned to obtain approval from our federal banking regulators under the appropriate federal banking laws, and believe we have made a strong case on the pro-competitive and pro-consumer benefits of this transaction,” the spokesperson said in an email Wednesday.
Dive Insight:
The AG’s office said in the filing that it’s investigating a proposed merger “that will affect millions of New Yorkers, resulting in them having billions of dollars of credit card debt consolidated in a single new entity, potentially in violation of New York’s antitrust laws.”
The proposed acquisition, announced in February, awaits approval from the Federal Reserve and the Office of the Comptroller of the Currency. The companies have said they expect regulatory sign-off late this year or early next.
Capital One has leaned into the argument that the tie-up will increase payment network competition because the bank can provide a boost to Discover, the fourth-largest card network. Executives have also argued the credit card issuer market is intensely competitive, and the deal won’t restrict that.
Banking regulators have signaled that large proposed mergers may face more drawn-out timelines and more scrutiny, as the Biden administration has sought to step up antitrust enforcement. The proposed deal has faced criticism from some lawmakers, consumer advocacy groups and the public, although it’s received support, too.
If Capital One’s acquisition of Discover is approved, the combined company would surpass JPMorgan Chase as the largest credit card issuer and would have $250 billion in combined outstanding credit card loans, the AG’s office noted in the court filing.
Additionally, the combined company would control about 30% of the subprime credit card market, “double the market share of their closest competitor,” the filing noted.
Capital One and Discover have about $9.5 billion and $6.5 billion in credit card loans in New York, respectively, the filing noted. “The effects will be particularly felt by the often vulnerable New Yorkers with subprime credit scores,” James’ office argued.
The Justice Department is also reviewing the proposed deal, and served each company with civil investigatory demands seeking information and documents related to the takeover’s potential effects on competition, according to the filing.
When the New York AG’s office in May asked each company to allow it to review the documents that were shared with the DOJ, Discover consented but Capital One did not, the filing said. Capital One said it couldn’t voluntarily waive federal confidentiality protections based on OCC regulations. OCC attorneys confirmed this with the AG’s office, the filing said.
Capital One then suggested a “limited waiver,” which would allow the DOJ to verbally share its analysis with James’ office but not turn over actual documents or data. The AG’s office turned down that proposal, saying it “could not meaningfully investigate” the matter without access to Capital One’s documents.
In the filing, James’ office contends “[f]ederal banking statutes and regulations are not an impediment” to the court issuing a subpoena, and the proposed subpoena seeks the same documents and information the DOJ’s antitrust division already requested.
The AG seeks information and documents related to the negotiation and approval of the proposed deal, the combination’s strategic rationale and expected impact, and competition in product and services markets, according to a court filing.
James’ office and a Discover spokesperson didn’t immediately respond to requests for comment.
