A potential megamerger would shake up the credit card industry. Should it be allowed to go through?

What’s happening

Capital One announced on Monday that it had reached an agreement to buy Discover for $35 billion in a megadeal that would merge two of the biggest credit card companies in the United States and turn Capital One into one of the nation’s largest banks.

The proposed acquisition is expected to face serious scrutiny from financial regulators, who have the power to block the deal from going through if they determine it would be bad for the overall health of the economy.

President Biden has made increasing competition one of the central goals of his economic agenda under the belief that “excessive market concentration” poses a threat to the economy, consumers, small businesses and even American democracy. Since Biden took office, regulators have been much more aggressive in trying to prevent large companies from merging in sectors across the economy. Last month, for example, the Justice Department successfully prevented JetBlue from purchasing Spirit Airlines.

If allowed to acquire Discover, Capital One would become the sixth-largest bank in the U.S. in terms of assets and potentially the single biggest credit card lender in the country. It would also give Capital One control over Discover’s payment network, which would give the bank a foothold in a sector currently dominated by Visa and MasterCard.

Why there’s debate

Several Democrats have called for regulators to block the deal, arguing that it would allow Capital One to become too powerful. “The merger … threatens our financial stability, reduces competition, and would increase fees and credit costs for American families,” Sen. Elizabeth Warren wrote on social media. That sentiment isn’t exclusive to those on the left, however. Republican Sen. Josh Hawley wrote that the deal “Sounds like the credit card companies finding another way to screw the American people.”

In critics’ view, the merger would lead to less competition in a credit card industry that is already commanded by a handful of large companies, who tend to offer higher interest rates and more fees than their smaller competition. The deal also comes at a time when Americans owe more in credit card debt than ever before and are paying the highest average interest rates ever recorded.

But supporters of the deal say it would actually benefit consumers and retailers by creating another banking powerhouse that can actually compete with the currently unrivaled power of Visa and MasterCard. They argue that the emergence of fresh competition will force all of the major credit card companies into an arms race of lower rates, better terms and more perks to attract new customers and keep the ones they already have.

What’s next

Experts say the merger could lead to some significant policy shifts for Capital One and Discover customers if and when it’s allowed to go through, but cardholders shouldn’t expect any changes until at least the end of this year.

Perspectives

The deal would make the rich richer at the expense of everyone else

“If it goes through, it will turn Capital One — already a financial colossus — into an even bigger giant. Is anyone outside of the financial sector asking for that?” — Helaine Olen, MSNBC

Consumers will benefit if there’s another lender with the teeth to challenge the industry’s behemoths

“The merger could actually create more robust competition against Discover’s bigger rivals, leading to an increase in benefits for consumers.” — John Berlau, director of finance policy at the Competitive Enterprise Institute, to Washington Examiner

The last thing the economy needs is another 'too big to fail' bank

“It’s time for bank regulators to step up and do their jobs to protect the safety and stability of the financial system, the economy, and the American consumer — starting with blocking this deal.” — Shahid Naeem, senior policy analyst at the American Economic Liberties Project

The government should stay out of the way and let the market correct its own shortcomings

“What do you know? Market forces could correct a putative market problem. Yet progressives can’t abide that. … The ironic beneficiaries would be Visa, Mastercard and the giant banks.” — Editorial, Wall Street Journal

Concentrated power makes the banking sector more vulnerable

“The combination of Capital One and Discover will certainly have significant concentration risk. This means that a lot of their assets will be sensitive to the same economic and market factors. If we enter an economic downturn, or worse yet, a recession, concentration will hurt the new financial institution’s liquidity and earnings.” — Mayra Rodriguez Valladares, Forbes

Blocking the deal would be too little, too late for the idea of actual competition in the credit industry

“If regulators wanted to do something, they should have acted years and years ago to create more competition.” — David Robertson, the publisher of the Nilson Report, to New York Times

The Biden administration has to show that it’s rhetoric on the value of competition is more than just talk

“The Biden administration has carved out an aggressive position on antitrust policy, and rubber-stamping a merger creating the largest credit card issuer in America would completely contradict that. It brings the conflict between banking regulators and the DOJ antitrust to a head, and could force long-delayed action on how the regulators will handle mergers now and in the future.” — David Dayen, American Prospect