New York Attorney General Seeks Subpoena in Investigation of Capital One-Discover Merger

The office of New York Attorney General Letitia James is intensifying its scrutiny of Capital One’s proposed $35 billion merger with Discover Financial Services, filing a motion in Manhattan’s state Supreme Court to issue an out-of-state subpoena. This move is part of an ongoing investigation into whether the merger could potentially violate New York’s antitrust laws, as reported by Law.com.

According to the filing made on Wednesday, James’ antitrust bureau is looking into how the merger might affect competition in the state, particularly under the Donnelly Act, New York’s primary antitrust legislation. The attorney general’s lawsuit highlights that the merger could significantly impact the state, given that Capital One and Discover each hold substantial amounts of credit card loans—$9.5 billion and $6.5 billion, respectively—within New York. “The effects will be particularly felt by the often vulnerable New Yorkers with subprime credit scores,” the lawsuit asserts.

The proposed merger, announced in February, would position the combined entity as the largest credit card issuer in the United States, controlling approximately 25% of all outstanding U.S. credit card loans, as noted in the complaint. Moreover, the merger could lead to a consolidation of more than 30% of the subprime credit card market, a figure that more than doubles the market share of their nearest competitor.

Related: NY Attorney General Probes Capital One’s $35B Discover Deal

Pending regulatory approval, the all-stock transaction is projected to close in late 2024 or early 2025. The urgency of the investigation is underscored by the size and potential market influence of the merger, particularly in light of the significant credit obligations both companies have in New York.

As part of the investigation, the attorney general’s office reached out to the legal teams for both companies in May, seeking voluntary waivers of federal confidentiality protections. This request aimed to allow the U.S. Department of Justice’s Antitrust Division to share pertinent documents and information with the state’s antitrust bureau. While Discover consented to the waiver, Capital One declined, citing guidance from the federal Office of the Comptroller of the Currency that such a waiver would conflict with regulations limiting state law enforcement agencies’ oversight of national banks.

Capital One has yet to respond to requests for comment on the recent developments. This scrutiny comes amid a backdrop of increasing legal challenges, including a proposed antitrust class action filed in July in a federal court in Alexandria, Virginia, by two Capital One customers from New Jersey and Vermont.

As of 2023, Capital One and Discover ranked as the fourth- and fifth-largest credit card issuers in the U.S., with outstanding credit card loans of $148 billion and $102 billion, respectively. If the merger proceeds, it would create the largest credit card issuer in the country, further emphasizing the stakes involved in this legal and regulatory battle. The Justice Department is also conducting its investigation into the merger on antitrust grounds, adding another layer of complexity to the proceedings.

Source: Law.com