Three days after the Consumer Financial Protection Bureau released a report indicating that large banks are offering higher credit card interest rates to consumers than smaller banks and credit unions, one of the nation’s largest credit card issues — Capital One — announced it was buying another of the nation’s largest issuers — Discover Financial — in a deal that is valued at more than $35 billion.
The acquisition would give Capital One access not just to the consumers who have Discover cards, but to a card network; one that competes, albeit on a much smaller scale, with Visa and Mastercard. Capital One said it will maintain the Discover brand, if regulators approve the transaction and the deal is finalized.
Capital One is the nation’s 9th-largest financial institution while Discover ranks 33rd.
The CFPB’s report may provide the government with all the ammunition it needs to block the deal. The top 10 credit card issuers nationwide account for 80% of all credit card loans, and that marketshare allows them the ability to charge higher interest rates, according to the CFPB. Consumers with a credit score below 619 who obtain a credit card from a small bank or credit union are paying 20.62% interest, on average. Compare that with the 22.99% that consumers with a credit score of 720 or higher are paying at large banks.
- Nine of the 15 largest issuers of credit cards have at least one credit card product with an interest rate that is higher than 30%.
- More than 25% of the cards offered by large banks had an annual fee, compared with less than 10% at small banks. The average annual fee at a large bank was $157, compared with $94 at small banks, according to the CFPB.
