Federal Reserve Ignores California Concerns, Approves Capital One-ING Direct Merger

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Feb 14, 2012, 07:27 ET

SAN FRANCISCO, Feb. 14, 2012 /PRNewswire-USNewswire/ -- Despite hundreds of testimonies and letters from California community groups and a widely-attended public hearing in San Francisco last October, the Federal Reserve has decided to ignore California's community needs by approving the merger of Capital One and ING Direct. With the merger approved, Capital One becomes the fifth largest bank in the country with no immediate obligations to reinvest into the communities from which it profits. This is a critical issue for Californians, who generate more business for Capital One than any other state. Capital One has no branches in California, and, according to the Fed's narrow interpretation of the Community Reinvestment Act (CRA), they will not be required to reinvest their profits back into our communities.

The approval of this merger is a critical policy issue that must be addressed immediately. CRA is an important regulation that provides critical lending needs to low income communities and communities of color by increasing access to small business loans, affordable housing development, and basic bank services. The Federal Reserve has interpreted the Community Reinvestment Act so that banks only need to reinvest profits in communities where the bank has branches. This flies directly in the face of the original intent of CRA—to promote reinvestment where banking occurs. The Federal Reserve and Capital One are hiding behind the fact that the CRA branch requirement is a vestige from when the law was written in 1977- when banks did all of their business through branches. The banking industry has changed dramatically since 1977, as more customers conduct their banking online and more banks are deciding to shut down branches (especially in low income communities). By refusing to interpret CRA more broadly, the Fed is providing banks with an excuse to ignore the critical needs of California's communities.

"The Federal Reserve missed an important opportunity to impose meaningful requirements on this merger that would benefit California and other communities across the country," said Alan Fisher, Executive Director of the California Reinvestment Coalition. "The Federal Reserve should immediately take steps to modernize CRA so that this type of weak regulation does not happen again in the future." Hearings were held on the topic of CRA modernization in August 2010, and the Federal Reserve has yet to make any progress on instituting changes to the regulation.

In its notice of the approval, the Federal Reserve claims that ING Direct's two California-based "cafes" (in San Francisco and Los Angeles), will begin to accept deposits and therefore will be considered branches that are subject to CRA evaluation. The Federal Reserve should ensure that the bank does not consider its predatory credit card, small business credit card, and auto lending practices as "community benefits."

Capital One is built on a predominately high-rate, fee-heavy credit card business that exploits consumers. The bank collects finance charges and other customer fees equal to 42% of profits. It even admits that if borrowers begin "avoiding late fees, over the limit fees, finance charges and other fees [it] could have an adverse impact on our revenues." Capital One's products strip wealth from California small businesses and households that need affordable housing and banking services.

The California Reinvestment Coalition, along with our members and allies in the state and across the nation, raised a number of these concerns about this acquisition last fall. The Federal Reserve held three hearings on the merger in October 2011, in San Francisco, Chicago, and Washington DC. After months of closed sessions and comment periods, the Federal Reserve announced their final decision today.

The California Reinvestment Coalition is a membership organization of 300 nonprofits that advocates for fair and equal access to banking and other financial services for California's low income communities and communities of color. www.calreinvest.org

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SOURCE California Reinvestment Coalition