Cap One Purchase of HSBC May Lead to Higher Credit Card Rates

Capital One has been on a bit of a buying spree lately, but their proposed deal to purchase ING Direct for $9.2 billion is pending approval by the Federal Reserve. The Dodd-Frank Financial Reform Act made it mandatory that the Federal Reserve gauge the systemic risk of the integrated company. If the risk can be perceived to outweigh any benefits yielded by the transaction, the deal must then be prevented. The acquisition of ING, should it go through, would make would make Capital One the fifth-largest bank by deposits in the United States.

For its part, the Federal Reserve is giving serious pause before approving the creation of another too-big-to-fail bank, extending the comment period, which is to include public hearings, until October 12. The initial expiration date for the comment period was August 22.

According to an article published on The Street’s website:

‘The Fed said the purpose of the meetings was to help the regulator "determine whether the acquisition can be expected to produce benefits to the public" that will "outweigh possible adverse effects," which include "decreased or unfair competition, conflicts of interest, unsound banking practices and risks to the U.S. banking or financial system."

The Fed also said it would review Capital One's "financial and managerial resources" and the performance of Capital One and ING Direct "under the Community Reinvestment Act."

“This annoys the people doing the deals because it slows things up and may direct attention in unexpected areas, but it’s part of what you bite off when you are a regulated enterprise and want to do a merger,” said Ellen Marshall, a banking lawyer and partner at Manatt, Phelps & Phillips LLP in Costa Mesa, CA to Bloomberg. “The Fed does not want to appear cavalier about doing whatever Wall Street thinks is best.”

National Community suggests that this will result in ever more credit cards at high interest rates being pushed to American consumers who (presumably) can’t fend for themselves.

Community groups opposing the deal are being led by the National Community Reinvestment Coalition. One of their arguments against the deal is that by allowing Capital One to take over ING, the marketplace will be flooded with “more credit cards at high-interest rates being pushed to American consumers who presumably can’t fend for themselves,” according to the New York Times.

The bulk of Capital One’s revenue comes from issuing credit cards. They oppose public hearings and the extended comment period.

Lauren Palmer

Lauren Palmer is a freelance writer who is a regular contributor to a variety of online and print publications. Although she has much to say about many subjects, she specializes in topics pertaining to personal finance. She holds a bachelor’s degree from NYU in journalism.