Capital One offers $265B benefit plan to appease regulators for planned purchase of Discover

Capital One said Wednesday it plans to offer $265 billion in lending, investing and philanthropy projects as part of its pending $35 billion merger with Discover Financial. The plan is designed to appease federal bank regulators, who have been initially skeptical of approving the merger, which would create the world’s largest credit card company if it goes through.

The five-year, $265 billion community benefit plan consists of several initiatives by Capital One, including a plan to lend $200 billion to low- and middle-income consumers, $44 billion in community development work and hundreds of millions of dollars to nonprofits, small businesses and minority-owned financial institutions.

Announced back in February, Capital One said it plans to buy and merge with Discover Financial Services, which will create the seventh-largest bank in the country as well as the largest credit card company. Capital One would also acquire Discover’s payment network, a rare asset.

The Biden Administration has not weighed in on the Capital One-Discover merger specifically yet, but some of the major bank regulators and Democratic politicians have made public comments that large bank mergers — those over $100 billion like this deal — should be given extra scrutiny. Other non-bank mergers have also received increased scrutiny from the Federal Trade Commission and Department of Justice.

Further several community and consumer groups have expressed concern or alarm about the size of the merged company, feeling it might reduce competition, and how much exposure a combined Capital One-Discover has to the credit card market.

Notably, Capital One is including credit card lending as part of its plan. The McLean, Virginia-based company plans to offer $125 billion in credit card loans to low- and middle-income consumers as well as $75 billion in auto lending. Historically banks would offer lending programs to small businesses and mortgages, but Capital One doesn’t have a mortgage lending department to do so.

Consumer groups are expected to put heavy pressure on the Biden Administration to make sure the deal is good for consumers as well as shareholders.

“The reason Capital One isn’t making any mortgage commitments here has some dark irony: They quit mortgage seven years ago, breaking promises they made the last time they bluffed regulators to get a merger through,” said Jesse Van Tol, CEO of the National Community Reinvestment Coalition, a group that often works with banks to develop these community lending programs. NCRC did not work with Capital One on this plan, but has worked with other banks on mergers of similar size and scope.

Capital One said the plan was developed in partnership with the National Association for Latino Community Asset Builders, NeighborWorks America, the Opportunity Finance Network and the Woodstock Institute.

“Throughout this process, we were encouraged by Capital One’s ownership of areas where it has room for improvement and openness to discussing ideas beyond its comfort zone. We look forward to continuing to work together to deliver on the plan’s commitments and help drive capital to the communities that need it most,” said Harold Pettigrew, president and CEO of OFN.

Capital One also pledged not to close any branches as part of the merger, and to continue opening more branches in low-income neighborhoods. The bank promised to keep one third of its branches in low-to-middle income census tracts as well, with plans to open more Cafes — a type of branch that acts as a community center, coffee shop and meeting space — in these neighborhoods as well.

“This plan delivers high-impact, scalable solutions for low- and moderate-income communities, and its commitments and ambition reflect the robust, candid dialogue that drove its development,” said Andres Navarrete, executive vice president and head of external affairs at Capital One, in a statement.