Capital One Faces Lawsuit for Discover Acquisition

Capital One and Discover Financial face a lawsuit alleging their proposed $35 billion merger would reduce competition, increase prices and should therefore be blocked.

The proposed class action, which was filed in Alexandria, Virginia federal court, was initiated by two Capital One customers from Vermont and New Jersey.

They said Capital One’s acquisition of Discover Financial, which was announced in February as it set to make it the largest credit card company by loans, violates US antitrust laws.

The lawsuit claims the merger will lead to substantial lessening of competition in two important US antitrust markets, the general credit card market and the credit card payment processing market.

In the general credit card market, the proposed merger will remove one of two vertically integrated firms, which will significantly reduce price competition on Capital One and major issuers.

There are only four firms in the US credit card payment processing market — Visa, Mastercard, American Express and Discover.

With this merger, Capital One, a major issuer of Visa and Mastercard charge cards, will become a direct competitor to Visa and Mastercard and gain control of one of their main competitors.

Therefore, the lawsuit has asked the court to either prevent the merger or to require measures such as divesting assets to address any anticompetitive effects.

Capital One and Discover Financial have defended their proposed merger, stating it would drive competition in markets for credit cards and for payment processing.

In particular, Capital One said in a March regulatory filing that the deal would not harm credit card competition because the combined entity would still only account for about 13% of credit card purchasing volume.