Jesse Jackson, Groups Criticize Capital One On Credit Cards
28 September 2011 - 3:58AM
Dow Jones News
Rev. Jesse Jackson and other critics took aim at Capital One
Financial Corp.'s (COF) business model Tuesday, arguing that the
bank's credit-card business is so risky it would pose a threat to
the U.S. financial system.
Jackson, unmoved by the bank's fresh pledges to hire new workers
and invest in underserved communities, said Capital One has a
troubling business pattern of marketing costly credit cards to
vulnerable borrowers. He argued that the bank then spreads risk to
the American public by packaging that credit card debt into
securities.
"As Capital One vacuums up safe bank deposits, it spits out
higher-risk credit cards," said Jackson, founder and president of
civil rights group Rainbow PUSH Coalition. "It is clear that
Capital One has no commitment to legitimate community banking."
Jackson was one of several speakers at a hearing the Federal
Reserve is holding in Chicago to give the public a chance to weigh
in on Capital One's plans to buy ING Direct USA, the U.S.
online-banking business owned by ING Groep. (ING, INGA.AE).
The $9 billion deal, announced in June, would make the McLean,
Va., bank the fifth-largest in the nation based on 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. The goal is try to prevent taxpayer-funded bank
rescues.
Consumer interest groups such as the National Community
Reinvestment Coalition are opposed to Capital One's proposal. Like
Jackson, they argue that Capital One has a poor track record of
lending to minorities and small businesses. Instead of offering
underserved communities and low-to-moderate income consumers
traditional loans, the bank provides them costly credit cards, they
say.
Critics say the Federal Reserve shouldn't allow the bank to
expand without requiring it to do more to help communities.
Another concern among opponents is that the bank is heavily
involved in credit card securitization.
"Like the predatory and toxic subprime mortgages that eventually
imploded--taking the entire financial system with it--Capital One's
credit-card business is poised to become the next subprime lending
crisis for America," said NCRC Chief Business Officer James
Carr.
Amid the scrutiny, Capital One broadened defense of its
proposal. Capital One's general counsel John Finneran rejected
allegations that the bank is too entrenched in the credit card
business.
"Capital One began a journey in 2005 to diversify our lending
activities beyond credit cards into other traditional consumer,
small business and commercial loans," he said, adding that the
company's card portfolio has shrunk by about $17 billion, or 25%,
since 2008.
In addition to the ING Direct USA acquisition, Capital One in
August announced plans to buy HSBC Holdings PLC's (HBC, HSBA.LN)
credit card business.
Finneran said the acquisitions won't dramatically increase the
company's credit card business, which "will remain just above a
quarter of our total assets.
Last week, the company promised to invest $180 billion over 10
years in low and moderate-income communities.
This week, the company highlighted another potential benefit of
the deal: more jobs. Capital One on Monday announced that if the
acquisition is approved, it will add 500 jobs in Delaware, the home
of ING Direct USA's headquarters.
"We expect to bring hundreds of new, high-quality jobs to the
state and to become an active and engaged part of the Delaware
business community," said Capital One Chief Executive Richard
Fairbank.
Still, consumer groups are wary, partly because the bank's jobs
plan is contingent on funding from Delaware's Council on
Development Finance. Capital One is expecting to receive as much as
$7 million from the state.
"Apparently the state government needs to pay Capital One to
create jobs, raising the question: does Capital One benefit the
public, or does the public benefit Capital One?," said NCRC
President John Taylor. "Capital One should be judged by its track
record, not by what it promises under pressure."
-By Maya Jackson Randall, Dow Jones Newswires; 202-862-6687;
maya.jackson-randall@dowjones.com
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