Regulators are sounding the alarm on the "duopoly" of the credit card industry, which could blow up already sky-high APRs.

Consumer Financial Protection Bureau (CFPB) director Rohit Chopra says that mega mergers, like the deal recently announced by Capital One and Discover, put borrowers at risk.

While the CFPB doesn’t have the jurisdiction to block the merger, Chopra believes the consolidation of “large issuers” requires greater scrutiny.

He has reason to be skeptical. According to Fed data, Americans are paying record APRs largely due to increasing issuer profit margins instead of higher interest rates.

Chopra has made credit card reform a big part of his mandate to protect the consumer from predatory credit card practices, including subprime, cash-back, and loyalty programs.

He insists the “rubber stamp” that previously endorsed large-scale bank mergers before the Great Financial Crisis is no longer the standard operating procedure.

In an attempt to keep regulators at bay, Capital One contends there is “little overlap” between its credit card business and that of Discover, arguing that a combined company would enhance competition among card issuers.

Despite these claims, its crystal clear that larger credit card companies are benefitting from dwindling competition.

Big bank APRs

While the Fed has kept rates unchanged so far this year, credit card companies have been hiking APRs.

Take Synchrony Financial, which is an issuer behind retailer credit card TJ Maxx. According to reports, Synchrony has responded to the CFPB’s recent crackdown on credit card fees by raising its APR to 34.99% in addition to a steeper 39.99% as a late-payment APR.

Not only that, larger issuers tend to have higher APRs than smaller issuers.

In the first half of 2023, the 25 biggest credit card issuers charged higher interest rates compared to smaller banks, according to a CFPB analysis.

Based on the difference in APRs between big and small issuers, consumers with an average credit card balance of $5,000 could save between $400 and $500 by choosing a card issued by a small bank or credit union.

As of last year, close to 50% of credit card issuers have cards with APRs over 30%. Capital One was among the banks that made that list.

Adding insult to injury, big card issuers have a greater tendency to charge annual fees, and their fees are 70% higher than those of smaller issuers.

Credit card network duopoly

If the Capital One and Discover merger gets approved, critics warn it would only embolden credit card issuers to squeeze more fees out of borrowers.

“We should be worried about the functionality of the credit card market in general. This merger probably heightens that,” warned Consumer Federation of America director Adam Rust.

And while there are thousands of banks in America, consumers tend to flock to the same 30 financial institutions for credit cards.

A merger would narrow that field down even further.

In case of a merger, the two banks could combine their offerings or keep them separate. A combined platform could lead to fewer card offers for consumers.

In the meantime, lawmakers haven't entirely turned a blind eye to this merger.

Sen. Elizabeth Warren advocates blocking the deal immediately, saying it “threatens our financial stability, reduces competition, and would increase fees and credit costs for American families.”

She calls the deal “dangerous” and says it would “harm working people.”

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