Despite Initial Subprime Concerns, DOJ Reportedly Closer to Approving Capital One/Discover Merger

Capital One’s purchase of Discover may have turned a corner, according to a report that the Department of Justice is reassessing its objections to the merger.

The Capital Forum, a media company, reported March 31 that the DOJ had determined that its case to stop the merger was not strong enough to block in court.  

The DOJ has refocused its analysis on how the $35.3 billion deal would hurt consumers with no credit history, according to the Washington, D.C., media company. 

The Forum’s report cited sources familiar with the issue.   

Earlier last month, The Capital Forum reported that the DOJ had concluded that Capital One’s acquisition of Discover Financial would harm competition in the subprime sector. 

Capital One, the ninth largest bank in the U.S. and a major credit card issuer, announced it would buy Discover Financial Services, a digital banking and payment services company, in February 2024.

The move would create a global payments platform with 70 million merchant acceptance points in more than 200 countries and territories. 

“Our acquisition of Discover is a singular opportunity to bring together two very successful companies with complementary capabilities and franchises,” Richard Fairbank, founder, chairman and CEO of Capital One, said at the time. 

The merger would “build a payments network that can compete with the largest payments networks and payments companies,” he said.

But the deal still faces potential pushback on the state level. New York Attorney General Letitia James said last year that her office was investigating the merger. 

James wrote in a court filing that the deal would have a significant effect on New Yorkers, as the two companies would have a dominant 30% market share among subprime consumers.

Capital One Announced a $265B Community Benefit Plan

A few well-established institutions process the majority of credit card transactions. 

American Express, Discover, Mastercard and Visa are the four major credit card networks in the U.S. The networks provide the rails that make card payments possible.

Mastercard and Visa are far and away the largest of the four major credit card networks. 

Together, they account for $4.4 trillion of card purchase volume in the U.S. And nearly 70% of all credit cards in circulation come from Mastercard and Visa accounts.

“Our acquisition of Discover is a singular opportunity to bring together two very successful companies with complementary capabilities and franchises.” — Richard Fairbank, Founder, Chairman and CEO of Capital One

The potential merger is happening as consumers turn to credit as a way to stay on top of emergency expenditures, according to a recent study.

“Access to credit heavily impacts a shopper’s ability to manage unplanned expenses and remain financially flexible, especially in the face of emergencies,” PYMNTS wrote earlier this week.

In July 2024, Capital One announced it planned to offer $265 billion in lending, investing and philanthropy projects as part of its pending $35 billion merger with Discover Financial. 

The five-year, $265 billion community benefit plan includes a plan to lend $200 billion to low- and middle-income consumers and $44 billion in community development work.

And the company said it would lend hundreds of millions of dollars to nonprofits, rural areas, small businesses and minority-owned financial institutions.Capital One and Discover said last year that more than 99% of the stockholders for both companies had voted to OK the merger.