10/25/2011 10:49 am ET | Updated Dec 25, 2011

The Bank Merger From Hell (or, What's Preying on Your Wallet?)

As public anger at Wall Street greed boils over in the form of protests spreading across the nation, the Federal Reserve Board is poised to allow creation of yet another "too big to fail" bank. Worse, that bank has a record of precisely the sort of predatory behavior that has Americans so upset.

The bank is Capital One, which wants to swallow ING Direct to become the nation's fifth largest bank.
What's so wrong with that? It's hard to know where to start.

First of all, calling Capital One a bank is misleading. The company behind those ubiquitous "What's in your wallet?" commercials is more like a credit card company masquerading as a bank.

Two thirds of Capital One's 2010 revenue came from its credit card business, not consumer banking. Worse, one of Capital One's specialties is subprime credit cards that are as predatory and dangerous as those tricky subprime mortgages that outfits like Countrywide were peddling a few years ago.

I was there on October 5, when the Federal Reserve came to San Francisco for the last of three public hearings on the merger and literally hundreds of community members turned out in the middle of their work day to object. That day, we heard multiple stories of how Capital One marketed its cards to low-income and immigrant communities, selling them as a way for people with no credit history to start establishing credit. But this enticing offer quickly turned into a nightmare as interest rates skyrocketed with even one late payment, fees piled up, and cardholders were driven further and further into debt.

One of Capital One's most notorious reported tactics is to issue credit cards with very low limits, often in the neighborhood of $300. When that limit is exceeded, it typically would charge a fee while simultaneously issuing the cardholder a second or third card, also with a low limit. So instead of one credit card account with a reasonable credit limit, the unlucky cardholder now has three or more microaccounts -- which pile up fees upon fees when the customer inevitably has trouble keeping track of them all.

Spanish-speaking customers reported having trouble getting assistance in Spanish, and when they finally reached someone who spoke their language, that person typically didn't have authority to resolve the situation.

Capital One's behavior regarding small business lending is just as problematic. Last year it slashed its Small Business Administration lending from $228 million to a laughable $551,000, apparently preferring to issue credit cards to small business customers.

But those cards are a much worse deal, with higher interest rates and fees than SBA loans, and don't provide long-term capital, which is often a crucial need for these firms.

That's not all. Capital One does have a significant mortgage portfolio, mainly from acquisitions of other banks, but hasn't participated in the Home Affordable Mortgage Program, the national government-backed effort to stem the tide of foreclosures, except in the limited circumstances where it's required. In my home state of California, where the company generates an estimated 10 percent of its profits, it hasn't participated in the state's foreclosure relief program, Keep Your Home California.

The Fed can allow this merger only if it finds that the systemic risk from the new bank's size is outweighed by public benefit. But as hundreds of members of the public have testified in San Francisco, Chicago and Washington, D.C., there is little sign of any public benefit in Capital One's business model.

This is truly The Bank Merger From Hell, and the Fed can and should block it unless Capital One agrees to tough, enforceable conditions that will change its outrageous behavior.