A proposed deal between two of the nation’s bigger credit card lenders that would see the larger one purchase the smaller’s credit card portfolio is now being called into question by consumer groups.
Earlier this year, Capital One Financial reached a deal with Europe-based HSBC to acquire its credit card business, but now several groups that represent hundreds of community organizations across the country says the deal is something that needs to be stopped, according to a report from the Wall Street Journal. The objection to the deal, led by the National Community Reinvestment Coalition, is based on Capital One’s history of lending to subprime, low-income borrowers, who are more likely to run into serious credit card debt and are therefore at greater risk for default.
In a letter sent earlier this week to the Office of the Comptroller of the Currency, the groups also noted that the practice is unnecessarily hazardous for the lender, and adds undue risk to the entire economy as a consequence, the report said. The deal was first announced in August, and would cost Capital One $2.6 billion. In all, HSBC would transfer about $30 billion in prime and subprime credit card debts, as well as private-label accounts from retailers. Now, the OCC has requested hearings on the deal.
Capital One has been making a number of moves to expand its business in recent months, having recently purchased ING’s U.S. online banking business for $9 billion, the report said. That deal was opened for public comment for an additional two months by the Federal Reserve Board after numerous community groups complained. As part of the deal, Capital One agreed to invest $180 billion in communities over the next decade.
The Fed also scheduled public hearings on the deal, at which Capital One has defended its lending practices, saying subprime lending increases responsibility among borrowers, and helps extend purchasing power to those who would otherwise not have access to credit, the report said.
“Our history clearly demonstrates that our customers and communities will see numerous benefits from this acquisition,” a Capital One spokeswoman told the newspaper.
Many consumers may be a bit wary of taking on credit card debt in the wake of the recession, as hiring has remained at relative lows and wages have been stagnant.