Capital One pledges $265 billion in lending, philanthropy as it tries to
clinch Discover deal
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[July 17, 2024] By
Michelle Price
WASHINGTON (Reuters) - Capital One will commit $265 billion over five
years to lending, philanthropy and investment if its takeover of
Discover Financial Services goes through, the bank said on Wednesday, as
it aims to appease critics and win over regulators.
Under a plan agreed upon with four community groups, Capital One has
promised to maintain the combined entity's lending to low-and-moderate
income (LMI) consumers and communities at $200 billion over five years.
It will retain Discover's sole branch in Delaware and will not close any
branches as a result of the deal. Capital One will also maintain 30% of
branches and cafes in LMI neighborhoods, and has promised no front-line
staff cuts.
The McLean, Virginia-based Capital One has also committed over $35
billion to support affordable housing for LMI communities and
individuals, a 30% increase over what the banks had previously planned,
among other small business lending, product and education pledges.
Unveiled in February, Capital One's $35 billion Discover deal will
create the biggest U.S. credit card issuer by balances and the
sixth-largest bank by assets. It will also give Capital One control of
Discover's card payment network, the fourth major payment network
operator after Visa, Mastercard and American Express.
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Some influential community groups oppose the tie-up between the two
major U.S. consumer credit card lenders, fearing it will reduce services
and increase costs for Americans. Proponents argue it could boost
payments competition.
Capital One's community benefits plan, which has not previously been
reported, is more than twice as big as any such plan to date, according
to data from the National Community Reinvestment Coalition (NCRC), a
network of nonprofits.
It could help assuage critics and make the deal more palatable to the
Federal Reserve and Office of the Comptroller of the Currency (OCC),
which are under political pressure to be tough on mergers. The agencies
are holding a public meeting to discuss the transaction on Friday.
"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 the other factors that they look
at," Andres Navarrete, Capital One's head of external affairs, told
Reuters in an interview.
The plan also includes $600 million for community development financial
institutions, sixfold what the two banks had previously planned, and
will boost planned philanthropic giving by 29% to $575 million.
'ESSENTIAL NEEDS'
Community groups have increasingly pushed for acquiring banks to commit
to community benefits plans, arguing that consolidation since the
2007-2009 financial crisis has reduced Americans' access to affordable
financial services.
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![](../images/071724PIX/busine87.jpg)
Screens display the logos and trading information for Capital One
Financial and Discover Financial as traders work on the floor at the
New York Stock Exchange (NYSE) in New York City, U.S., February 20,
2024. REUTERS/Brendan McDermid/File Photo
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While the Fed and OCC do not require such plans, the law says they
must scrutinize the convenience and needs of affected communities,
and the agencies consider commitments to maintain or expand
services, said Chip MacDonald, an M&A lawyer and managing director
at MacDonald Partners.
Skeptics, though, say the plans often lack transparency, are not
legally enforceable, and are difficult to measure.
"You don't know what the bank was already planning on doing so it's
not clear what the additional commitment is," said Jeremy Kress, a
University of Michigan professor.
Capital One said it will report its progress to the Fed and OCC
annually and regularly update its Community Advisory Council.
The $100 billion community benefits plan US Bancorp agreed with the
NCRC in 2022 to clinch its MUFG Union Bank takeover had been the
largest previous plan, according to the NCRC which has negotiated
all national benefit plans.
The group has been a vocal critic of Capital One, saying the bank
did not honor a $28.5 billion commitment to mortgages and home
lending made when acquiring ING Direct USA in 2012.
Capital One withdrew from that business in 2017. The NCRC has argued
that home loans are an important component of benefits plans because
they help build wealth.
"We made significant investments in building a mortgage business
over the years, but ultimately couldn't make it work," said
Navarrete. The bank said it exceeded all its other commitments.
Navarrete said that credit card and auto lending, which constitute
Wednesday's $200 billion LMI lending figure, are also key products
that help consumers meet essential needs and build credit history.
In an unusual move, Capital One bypassed the NCRC to agree
Wednesday's plan with four community groups, including the National
Association for Latino Community Asset Builders (NALCAB), which
together represent around 800 nonprofits.
NALCAB CEO Marla Bilonick said she believed the plan was very
generous and that Capital One's public commitment was "important
because it gives accountability."
(Reporting by Michelle Price in Washington Editing by Matthew Lewis)
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