Capital One/Discover Deal: Rumored Concerns Lack Substance

By: Eric Fruits (Truth On The Market)

In this post, author Eric Fruits tackles the proposed merger between Capital One Financial Corp. and Discover Financial Services Inc., which seems to be advancing toward completion after more than 99% of shareholders from both firms voted last month to approve the $35.3 billion deal. Still, at least one report suggests that anonymous sources within the U.S. Department of Justice (DOJ) believe the agency may yet challenge the merger on antitrust grounds, due to concerns over the combined company’s potential dominance in the subprime credit-card market.

However, as Fruits and the International Center for Law & Economics (ICLE) argue in a white paper published last summer, the DOJ may be focusing too narrowly on subprime competition and overlooking key market realities. The merger, they contend, is likely to benefit consumers—especially those with lower credit scores—by creating more options and potentially enhancing competition in financial services.

Beyond Market-Share Metrics
Writing in RealClearMarkets, Fruits’ co-authors Julian Morris and Todd Zywicki note that this merger raises few red flags under traditional antitrust standards.

• The merged company would become the sixth-largest U.S. bank by assets, yet control only 3% of total domestic banking assets.

• It would rank as the third-largest credit card issuer by purchase volume, trailing JPMorgan Chase and American Express. But with thousands of credit card issuers in the U.S., even the largest players hold relatively modest market shares.

• Despite this, New York Attorney General Letitia James has voiced concern that the combined firm would control about 30% of the subprime credit-card market. While that figure may sound alarming, it demands further scrutiny.

The “subprime” credit card market—typically defined as borrowers with FICO scores below 660—represents a small subset of credit card users. As of 2023, just 13% of consumers with at least one credit card fell into the near-prime (8.6%) or subprime (4.4%) categories.

What’s more, this segment is highly fluid. Consumers’ credit scores fluctuate over time, making it difficult to pin down a stable definition of the subprime market. According to Fair Isaac research, within just six months, 14% of credit card accounts saw scores drop by more than 20 points, while 19% saw similar increases. This constant movement challenges the idea that the subprime market is a static or reliably distinct category for antitrust purposes…

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