Consumer Groups Criticize Capital One's Plans To Expand
September 20 2011 - 1:12PM
Dow Jones News
Consumer groups at a public hearing Tuesday criticized Capital
One Financial Corp.'s (COF) lending practices and argued that the
bank's plan to buy ING Groep NV's (ING, INGA.AE) U.S.
online-banking business, ING Direct USA, would make the firm so
risky and complex it could topple the financial system.
Also, an organization representing community banks added its
voice to the stream of complaints and urged federal regulators to
not only block the Capital One-ING Direct USA deal, but all
acquisitions and mergers involving financial institutions with over
$100 billion in assets.
The group, Independent Community Bankers of America, highlighted
the proposal as evidence of the 2010 Dodd-Frank financial law's
shortcomings. The group says the law created to help prevent future
financial crises is failing to help smaller banks compete with
larger firms, and it's also failing to stop the banking system from
growing more concentrated.
"One of the critical goals of the Dodd-Frank Act was not only to
end too-big-to-fail, but also to level the playing field between
the megabanks and the rest of the industry," said Independent
Community Bankers of America Senior Vice President Chris Cole. "So
far, community banks have not seen much movement towards either
goal."
Capital One's $9 billion plan to buy ING Direct USA would make
the McLean, Va., bank the fifth-largest U.S. bank by deposits. It
is the first acquisition the Fed is reviewing under new laws
requiring regulators to judge whether a bank acquisition would
create a firm so risky that the government would have to bail it
out if it were to falter.
At the hearing, some local neighborhood development groups, such
as the Northern Virginia Affordable Housing Alliance, said the bank
has proven to be a good partner in helping to boost financial
literacy and create affordable housing options in blighted
cities.
Also, banking analysts have said they expect the Fed to approve
Capital One's proposal despite widespread scrutiny. If the Fed were
to reject the acquisition, it could have a chilling effect on other
bank deals, they say, while disputing claims that Capital One would
become the kind of giant bank Dodd-Frank sought to prevent.
"The too-big-to-fail argument I don't see as valid," said Scott
Valentin, an analyst with FBR Capital Markets & Co. He added
that Capital One isn't heavily involved in complicated financial
activities such as holding and trading derivatives. Size alone is
unlikely to be a factor for the Fed to reject the deal, and
Congress has already passed limits on the kinds of problematic
credit card practices consumers groups are most worried about, said
Valentin.
Still, the steady stream of complaints about the planned
expansion is putting the bank on the defensive and forcing it to
explain how the deal will benefit the public.
Capital One officials said the acquisition will enable it to
create jobs and make more loans at a time when other banks are
struggling to make such moves. During the hearing, the company
announced plans to invest $180 billion over 10 years in low- and
moderate-income communities if its deal to acquire online banking
business ING Direct USA goes through as planned.
"We want to reassure all the consumers, small businesses and
communities we serve of our continuing and substantial commitment
to provide products and services that will continue to meet their
needs," said a Capital One spokeswoman.
Still, the commitment didn't immediately quell critics'
concerns, and consumer groups said they would need some time to
thoroughly review the company's plan.
"Words are nice. Facts matter," said John Taylor, president of
the National Community Reinvestment Coalition.
Taylor argues that Capital One's proposal to acquire ING Direct,
as well as the bank's recently-announced plan to acquire HSBC
Holding PLC's (HBC, HSBA.LN, 0005.HK) credit card business,
undermines Dodd-Frank's goal to make the financial system more
stable.
He and other groups at the hearing said Capital One has not
extended enough credit to small businesses and underserved
communities. They argue that the bank doesn't provide enough home
loans, charges too many fees and focuses too heavily on credit card
practices that saddle vulnerable consumers with debt.
"You have a duty to deny Capital One's application to buy ING
Direct," Taylor said in his testimony to Fed staffers.
-By Maya Jackson Randall, Dow Jones Newswires; 202-862-6687,
maya.jackson-randall@dowjones.com
--Matthias Rieker contributed to this story.
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