Banking giant Capital One and credit card issuer Discover Financial (DFS.N) have been hit with a lawsuit claiming their proposed $35 billion merger would reduce competition, drive up prices and should be stopped.
Capital One and Discover announced their merger plan in February, swiftly drawing calls by some members of Congress for U.S. regulators to block the deal and raising the prospect of months-long antitrust scrutiny.
The two companies have defended their proposal, saying it would drive competition in markets for credit cards and for payment processing.
Capital One and Discover did not immediately respond to requests for comment on Monday. Attorneys for the plaintiffs declined to comment.
The U.S. Justice Department and Federal Trade Commission have not taken any formal action to oppose the merger. They declined on Tuesday to comment on the proposed class action, which marked the first private lawsuit over the deal.
Discover and American Express both issue credit cards and run their own payment processing systems. Visa and Mastercard operate the country’s largest card payment networks, but neither issues cards.
The lawsuit said the existence of Discover and American Express puts pressure on rivals to pay out rewards to customers to stay competitive.
But after the merger, according to the lawsuit, “this competitive force will greatly diminish.”
Capital One said in a March regulatory filing that its deal would not harm card competition because the combined entity would still only account for about 13% of credit card purchasing volume.
The lawsuit asked the court to either prevent the merger or to require steps such as divesting assets to cure any anticompetitive effects.
Last week, the Federal Reserve and Office of the Comptroller of the Currency held a public meeting addressing the Capital One acquisition plan.
The case is Tyler Baker and Lora Grodnick v. Capital One Financial and Discover Financial Services, U.S. District Court for the Eastern District of Virginia, No. 1:24-cv-01265.
For plaintiffs: Brian Dunne and Yavar Bathaee of Bathaee Dunne
For defendants: No appearances yet
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