Capital One’s $265 Billion Commitment in Light of Discover Financial Services Takeover

Capital One has announced a substantial commitment of $265 billion over five years to lending, philanthropy, and investment if its acquisition of Discover Financial Services is approved. This announcement, made on Wednesday, aims to address concerns from critics and secure regulatory approval. As part of the agreement with four community groups, Capital One will allocate $200 billion over five years to support low and moderate-income (LMI) consumers and communities.

One of the key promises in this plan is the retention of Discover’s sole branch in Delaware and the assurance that no branches will be closed due to the merger. Additionally, Capital One has pledged to maintain 30% of its branches and cafes in LMI neighborhoods and has committed to no reductions in front-line staff.

Based in McLean, Virginia, Capital One has also dedicated over $35 billion to support affordable housing for LMI communities and individuals. This marks a 30% increase over previous commitments. The plan also includes pledges for small business lending, financial products, and educational initiatives.

The $35 billion deal, announced in February, between Capital One and Discover will result in the creation of the largest U.S. credit card issuer by balances and the sixth-largest bank by assets. This acquisition will also grant Capital One control over Discover’s card payment network, making it the fourth major payment network operator in the U.S.

Despite the significant community benefits plan, some influential community groups are opposed to the merger, fearing it will lead to reduced services and increased costs for Americans. However, supporters of the merger argue that it could enhance competition in the payments industry.

Capital One’s community benefits plan, as first reported by Reuters, is more than twice as large as any previous plan, according to data from the National Community Reinvestment Coalition (NCRC). This ambitious plan is seen as a strategic move to alleviate concerns and gain approval from the Federal Reserve and the Office of the Comptroller of the Currency (OCC), which are under political pressure to closely scrutinize mergers. The agencies are set to hold a public meeting on Friday to discuss the transaction.

Andres Navarrete, Capital One’s head of external affairs, expressed optimism about the plan’s potential impact, stating, “I think the OCC and the Fed care deeply about this plan and the ways in which we will positively impact the community. They see this as akin to competition, financial stability, and other factors they consider.”

However, NCRC CEO Jesse Van Tol reiterated his criticism, highlighting that unlike home loans, credit card lending does not help consumers build wealth. He suggested that the large figures in Capital One’s plan “appear designed to dazzle,” but urged regulators to be cautious. Navarrete responded, emphasizing that credit card and auto lending, which make up the $200 billion LMI lending figure, are essential products that help consumers meet needs and build credit history. He also noted that despite significant investments in building a mortgage business, Capital One ultimately could not make it work but had exceeded all its other 2012 commitments.

In a notable move, Capital One bypassed the NCRC to finalize Wednesday’s plan with the National Association for Latino Community Asset Builders (NALCAB), NeighborWorks America, the Opportunity Finance Network, and the Woodstock Institute, representing approximately 800 nonprofits. NALCAB CEO Marla Bilonick praised the plan’s generosity, stating that Capital One’s public commitment is “important because it gives accountability.”

Capital One’s comprehensive community benefits plan represents a significant step towards addressing regulatory concerns and enhancing support for LMI communities. As the public meeting approaches, the bank’s commitment will be under scrutiny, but its proactive approach may set a new standard for community investment in the financial sector.