The Star-Ledger

Group Challenges Capital One-North Fork Merger

The Star-Ledger — Tuesday, June 20, 2006

Star-Ledger Staff

The state's largest consumer advocacy group is challenging credit card lender Capital One Financial's proposed $14.6 purchase of regional banking company North Fork Bancorp. on the grounds that both companies charge a disproportionately large number of their black and Hispanic customers higher rates on mortgage loans.

In a letter to Federal Reserve Bank of Richmond, New Jersey Citizen Action is calling on the federal banking regulators to intervene in the merger saying McLean, Va.-based Capital One and North Fork, based in the Long Island town of Melville, have "exhibited unfair lending practices to low income and minority customers."

According to data that Citizen Action compiled from reports to federal regulators, the group says "African-Americans were more than 19 times more likely to receive higher-cost loans than whites" and "Latinos were 14 times more likely to receive higher cost loans than whites."

In addition, Citizen Action says African-Americans and Latinos are far more likely than whites to receive subprime loans – loans to homeowners with less-than-sterling credit – which carry higher interest rates.

"If this $14.6 billion merger is permitted to take place, it will be a dark day for New Jersey customers" said Phyllis Salowe Kaye, executive director of Citizen Action in challenging the merger.

A spokesperson for Capital One yesterday said the merger with North Fork represented "a great opportunity for the people of New Jersey," and said the lender is "deeply committed to serving their local communities including those of low and moderate income."

"We believe that the proposed merger of North Fork Bank and Capital One will broaden the financial services products offered in New Jersey and that it will be beneficial for all residents of the state," said Diana Don, the director of financial education at Capital One. "Capital One does not discriminate based on race, ethnicity or other protected categories and complies with all fair lending laws."

Don also said because Capital One does not overlap with any of North Fork's current geographies, the merger will not result in the closing of any bank branches or job losses in New Jersey.

In March, Capital One, one of the nation's largest credit card issuers, reached a deal to buy North Fork to help reduce its reliance on credit cards and position itself for growth in the rapidly consolidating credit card industry. Of particular interest to Capital One was North Fork's presence in the New York metropolitan area, where it operates 355 branches in New York, New Jersey and Connecticut and ranks No. 3 bank in terms of retail deposits.

Back in 2004, North Fork became a household name in New Jersey after North Fork snapped up Jersey City-based Trustcompany Bank – a deal that transformed the fast-growing Melville, N.Y., bank into the eighth-largest bank in New Jersey.

Citizen Action also criticized both Capital One and North Fork for increasing their lending to check cashers and other "high-cost fringe financiers," who make high-interest loans in poor neighborhoods.

The Capital One/North Fork transaction is expected to close in the fourth quarter of 2006.

The combined company will have deposits of more than $84 billion, putting it among the nation's top 10 banks by deposits.

Although the Capital One/North Fork deal is being panned by consumer advocates, Barron's in its latest edition Sunday, praised the union, noting the credit card issuer will soon begin to reap rewards from its entry into banking.

Capital One has entered two deposit rich markets, New York and Texas, and now has a platform to sell more credit cards and loans to its bank customers as a means of growing revenue, Barron's said, citing analysts.

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