Capital One Says Repair of Discover’s Regulatory Challenges a ‘Big Undertaking’

Capital One expects the process of fixing Discover Financial’s regulatory challenges to be long and expensive.

“These can be very big undertakings,” Capital One CEO Richard Fairbank said Tuesday (Feb. 27) at a Keefe, Bruyette & Woods conference, according to a Bloomberg report. “Whatever people think it is, we’ll take the over.”

Capital One announced Feb. 19 that it aims to acquire Discover in a $35.3 billion deal that will create a global payments platform with 70 million merchant acceptance points in more than 200 countries and territories.

With that acquisition, Capital One will have to deal with Discover’s past lapses in compliance and risk management, according to the Bloomberg report. Those issues led to former Discover CEO Roger Hochschild resigning in August. 

Hochschild resigned weeks after Discover revealed it was the subject of a possible action by the Federal Deposit Insurance Corp. (FDIC). During an earnings call in July, the company revealed it was facing a possible FDIC consent order in connection with consumer compliance issues, while also acknowledging it had been overcharging merchants for years. 

During the Tuesday conference, Fairbank also addressed the concerns of some federal legislators that the consolidation of Capital One and Discover would harm consumers, according to the Bloomberg report.

Fairbank said that the deal “gives this network a chance to be more competitive with the giant network players out there,” per the report.

Both Congresswoman Maxine Waters, D-Calif., and Sen. Josh Hawley, R-Mo., said Wednesday (Feb. 21) that they were calling on banking regulators to block the deal.

PYMNTS reported Friday (Feb. 23) that Capital One’s potential purchase of Discover might prove beneficial to both the two financial services companies and consumers.

Both companies have long histories of working with paycheck-to-paycheck consumers, and nearly 60% of all credit cards are held by consumers living paycheck to paycheck. 

As paycheck-to-paycheck consumers are typically not targeted by the largest banks or card issuers, it’s possible that Capital One may be betting that with its proposed acquisition it can appeal to a large consumer segment that has shown that it is committed to keeping its financial house in order.