Prospects of a Capital One/Discover Acquisition

Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra offered some telling—though slightly between-the-lines—thoughts on Capital One’s proposed acquisition of Discover. 

In an interview with The Financial Times, Chopra refused to speak directly to Capital One and Discover, but said he was thinking about “large issuers . . . that compete in a number” of niche credit card markets. Wink wink, nudge nudge.

The CFPB is not directly involved in this deal, as Capital One filed its application with the Federal Reserve and Office of the Comptroller of the Currency, but the CFPB is “is regularly consulted on merger issues,” according to Chopra. 

This suggests Chopra’s concerns could substantially affect regulators’ decision-making on the potential $35.3B acquisition. His comments centered around three core questions: 

1. How would a merger affect consumer wellbeing?

Something of a no-brainer given the CPFB’s mission and its established record under Chopra. The CFPB may see the merger as an anticompetitive move that would further consolidate the credit-card space. Capital One and Discover, meanwhile, argue that a merger would increase competition, as it would give them more heft when facing Visa, Mastercard, and other issuers.

“More broadly, there is an unpersuasive talking point that fewer competitors is better for competition and I think we always need to assess that claim very skeptically,” Chopra said.  

2. How have prior mergers affected the market?

Chopra said he invited a deeper look into “past acquisitions” in order to prevent “catch and kill” activity that hampers competition. The past decade of mergers and acquisitions have not lowered interest rates and fees, Chopra suggested, which throws into question how the latest attempt at consolidation would be any different. 

3. What would happen in Capital One and Discover fail?

“There will need to be careful scrutiny of two quite large financial institutions, combining them and what might be the effect if they failed,” Chopra said. “Anytime you’re talking about large players like this merging, one has to not just look at competitive effects, one also has to look at the impact on financial stability.”

In other words, the synergies and externalities that come from a merger may also have market-wide implications in the event of failure or bankruptcy. 

If Chopra’s concerns are representative of US regulators’ writ large, then the merger may seem poised to die on the vine. But, as more application documentation and regulator questions emerge, Capital One, Discover, and their investors may have to recalibrate their expectations.