DOJ Reportedly Closer to Approving Capital One/Discover Merger

The Justice Department (DOJ) is reportedly closer to permitting Capital One’s purchase of Discover.

That’s according to a report Monday (March 31) by the Capital Forum, citing sources familiar with the matter.

Those sources said the DOJ has refocused its review of the $35.3 billion deal on how it would hurt consumers with no credit history. The report said the DOJ had concluded it would not have a strong enough case in court to bar the merger based on concerns about the subprime sector.

However, the department is divided on whether it could even bring a case involving no-credit-history borrowers to court, and could just allow the deal to close, the report added.

Earlier in March, the news outlet had reported that the DOJ had determined that the deal would be anticompetitive.

Capital One announced its planned acquisition of Discover in February of last year, saying the deal would create a global payments platform with 70 million merchant acceptance points in more than 200 countries and territories.

“Our acquisition of Discover is a singular opportunity to bring together two very successful companies with complementary capabilities and franchises, and to build a payments network that can compete with the largest payments networks and payments companies,” Richard Fairbank, founder, chairman and CEO of Capital One, said in a news release at the time.

In February, Capital One and Discover said that more than 99% of the stockholders for both companies had voted to OK the merger. Capital One has said it expects to close the transaction in the earlier part of this year, pending approval by the Federal Reserve and the Office of the Comptroller of the Currency and other closing conditions.

The deal is also facing potential pushback on the state level. For example, New York Attorney General Letitia James said last year that her office was investigating the merger. James wrote in a court filing that the deal would have “significant impact” on New Yorkers, as the two companies would have a dominant 30% market share among subprime consumers.

The potential merger is happening as consumers turn to credit as a way to stay on top of emergency expenditures, according to “Managing Unplanned Expenses: How The Pay Later Economy Fits Consumer Needs,” a PYMNTS Intelligence and Splitit collaboration.

“Naturally, major unexpected expenses fall outside normal budgets, making it difficult for consumers to cover them,” PYMNTS wrote earlier this week.

“For impulse and emergency purchases alike, shoppers are more likely to pay with credit than cash. In fact, our latest research shows that access to credit heavily impacts a shopper’s ability to manage unplanned expenses and remain financially flexible, especially in the face of emergencies.”