WASHINGTON—Capital One has secured approval from both the Federal Reserve Board and the Office of the Comptroller of the Currency to acquire and merge with Discover Financial Services, the agencies announced Friday, CNN reported.
To get full approval, Capital One must provide the OCC with a plan “to address the underlying root causes of any outstanding enforcement actions against Discover Bank and plans for remediation of harm,” the agencies said.
The all-stock deal, initially announced over a year ago, would provide Capital One with a significant advantage over rival credit card issuers like JPMorgan Chase, Bank of America, and Citigroup, which rely on third parties to process transactions, CNN said, adding, it would also give Capital One a new source of revenue from the merchant fees it collects.
For existing Discover customers, the move could increase merchant acceptance rates. But there’s also a risk that they could face higher credit card interest rates, CNN said.
“Compared to other major credit card issuers, Capital One has historically catered to customers with credit scores in the 600s range, which is considered subprime. Given these borrowers are considered riskier, they tend to get charged higher interest rates compared to higher-scoring individuals,” CNN said.
In signing off on the deal, the Fed announced it entered into a consent order with Discover and charged Discover a $100 million penalty “for overcharging certain interchange fees from 2007 through 2023,” CNN said.