By Michelle Price

WASHINGTON (Reuters) -Capital One will commit $265 billion over five years to lending, philanthropy and investment if its takeover of Discover Financial Services goes through, the bank said on Wednesday, as it aims to appease critics and win over regulators. 

Under a plan agreed with four community groups, Capital One has promised to maintain the combined entity’s lending to low-and-moderate income (LMI) consumers and communities at $200 billion over five years. It will retain Discover’s sole branch in Delaware and will not close any branches as a result of the deal. Capital One will also maintain 30% of branches and cafes in LMI neighborhoods, and has promised no front-line staff cuts.

The McLean, Virginia-based Capital One has also committed over $35 billion to support affordable housing for LMI communities and individuals, a 30% increase over what the banks had previously planned, among other small business lending, product and education pledges. 

Unveiled in February, Capital One’s $35 billion Discover deal will create the biggest U.S. credit card issuer by balances and the sixth-largest bank by assets. It will also give Capital One control of Discover’s card payment network, the fourth major payment network operator.

Some influential community groups oppose the tie-up between the two major U.S. consumer credit card lenders, fearing it will reduce services and increase costs for Americans. Proponents argue it could boost payments competition.

Capital One’s community benefits plan, first reported by Reuters, is more than twice as big as any such plan to date, according to data from the National Community Reinvestment Coalition (NCRC), a network of nonprofits.

It could help assuage critics and make the deal more palatable to the Federal Reserve and Office of the Comptroller of the Currency (OCC), which are under political pressure to be tough on mergers. The agencies are holding a public meeting to discuss the transaction on Friday. 

“I think the OCC and the Fed care deeply about this plan and the ways in which we will positively impact the community. They see this as akin to competition, financial stability and the other factors that they look at,” said Andres Navarrete, Capital One’s head of external affairs.

The bank will also commit $15 billion in lending to small businesses, a $5 billion spending goal with diverse suppliers, $9 billion to community development financing.

The plan also includes $600 million for community development financial institutions, sixfold what the banks had previously planned, and boosts planned philanthropic giving by 29% to $575 million.

A Fed spokesperson declined to comment. The OCC did not immediately respond to a request for comment.

Also on Wednesday, Discover said it was selling a portfolio of student loans for up to $10.8 billion, a process it began in November.

‘ESSENTIAL NEEDS’

Community groups have increasingly pushed for acquiring banks to commit to community benefits plans, arguing that consolidation since the 2007-2009 financial crisis has reduced access to affordable financial services. 

While the Fed and OCC do not require such plans, the law says they must scrutinize the convenience and needs of affected communities, and the agencies consider commitments to maintain or expand services, said Chip MacDonald, an M&A lawyer and managing director at MacDonald Partners.

Skeptics say the plans often lack transparency, are not legally enforceable, and are difficult to measure.

“You don’t know what the bank was already planning on doing so it’s not clear what the additional commitment is,” said University of Michigan professor Jeremy Kress.

Capital One said it will report progress to the regulators annually and regularly update its Community Advisory Council.

The $100 billion community benefits plan US Bancorp agreed with the NCRC in 2022 to clinch its MUFG Union Bank takeover had been the largest previous plan, according to the NCRC which has negotiated all national benefit plans.

The group has been a vocal critic of Capital One, saying the bank did not honor a $28.5 billion commitment to home loans when acquiring ING Direct USA in 2012. Capital One exited that business in 2017.

In a statement, NCRC CEO Jesse Van Tol reiterated that criticism and said that unlike home loans, credit card lending does not help consumers build wealth. The large numbers in Capital One’s plan “appear designed to dazzle,” he said, but regulators “can show they won’t be fooled a second time.”

Navarrete said credit card and auto lending, which constitute Wednesday’s $200 billion LMI lending figure, are key products that help consumers meet essential needs and build credit history.

“We made significant investments in building a mortgage business over the years, but ultimately couldn’t make it work,” said Navarrete. The bank said it exceeded all its other 2012 commitments.

In an unusual move, Capital One bypassed the NCRC to agree Wednesday’s plan with the National Association for Latino Community Asset Builders (NALCAB), NeighborWorks America, the Opportunity Finance Network, and the Woodstock Institute which together represent around 800 nonprofits.

NALCAB CEO Marla Bilonick said she believed the plan was very generous and that Capital One’s public commitment was “important because it gives accountability.”

(Reporting by Michelle Price in Washington, Editing by Matthew Lewis and Nick Zieminski)

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