New York – A potential merger between Capital One and Discover Financial Services could soon position Capital One as the largest credit card company in the United States. The announcement of the approval from the Federal Reserve’s Board of Governors and the Office of the Comptroller of the Currency was made on Friday. This move would give Capital One a significant advantage over competitors like JPMorgan Chase, Bank of America, and Citigroup.
In order to receive full approval, Capital One must present a plan to the OCC addressing any outstanding enforcement actions against Discover Bank. The proposed all-stock deal, which was initially announced over a year ago, is expected to provide Capital One with added revenue from the merchant fees it collects. This acquisition would enable existing Discover customers to benefit from increased merchant acceptance rates.
However, there is also a potential downside for customers as the merger could lead to higher credit card interest rates. Historically, Capital One has focused on serving customers with credit scores in the subprime range, typically in the 600s. These borrowers are considered riskier, resulting in higher interest rates compared to individuals with higher credit scores.
As part of the deal approval, the Fed issued a consent order with Discover and imposed a $100 million penalty for overcharging certain interchange fees. This development is still ongoing and will continue to be updated as more information becomes available about the merger between Capital One and Discover Financial Services.