Critics Say Bank Should Not Be Allowed To Expand Unless It Does More to Help Community

Among the critics who took aim at Capital One Financial Corp's business model earlier this week was the Reverend Jesse Jackson.

His criticism?

He says the bank's credit-card business is too much of a risk for the health and stability of the U.S. financial system.

Despite the bank's recent pledge to hire new workers and invest in struggling communities, Jackson said Capital One has a troubling business pattern of marketing costly credit cards to vulnerable borrowers, according to a recent Wall Street Journal (WSJ) report.

"As Capital One vacuums up safe bank deposits, it spits out higher risk credit cards," said Rev. Jackson. "It is clear that Capital One has no commitment to legitimate community banking."

Rev. Jackson was one of several speakers at a hearing the Federal Reserve held 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, reports the WSJ.

The proposed deal between Capital One and ING would amount to a $9 billion and would therefore make Capital One the fifth-largest bank in the nation (based on deposits).

The Fed is reviewing the acquisition to determine whether it would create a firm so risky that the government would have to bail it out should it fail.

"Capital One's general counsel John Finneran rejected allegations that the bank is too entrenched in the credit card business," writes Maya Jackson Randall of the Wall Street Journal.

"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 percent, since 2008.

Nevertheless, consumer interest groups such as the National Community Reinvestment Coalition (NCRC) oppose the Capital One deal. Like Rev. Jackson, the consumer groups say that Capital One has a poor track record of lending to minorities and small businesses, reports the WSJ.

"Capital One should be judged by its track record, not by what it promises under pressure," said  NCRC President John Taylor.

Critics of the deal say the Federal Reserve should not allow the bank to expand unless it does more to help struggling communities.

As a part of its efforts to address these public concerns, the bank has proposed a variety of hiring and lending initiatives. Last week, it promised to invest $180 billion over the course of 10 years in low and moderate-income communities.

"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.