*

Deal could boost competition but may reduce services and

increase costs, say opponents

*

Capital One commits $265 billion over five years to

lending,

philanthropy, and investment

*

Community support could positively affect regulators'

views, M&A

experts say

By Michelle Price, Pete Schroeder

WASHINGTON, July 19 (Reuters) - Capital One CEO

Richard Fairbank and other executives went head-to-head with

community groups at a public meeting on Friday convened by

regulators to discuss the bank's tie-up with Discover Financial

Services ( DFS ).

Unveiled in February, the $35 billion deal will create the

biggest U.S. credit card issuer by balances, the sixth-largest

bank by assets, and will give Capital One control of Discover's

card payment network, the fourth major payment network

operator.

Virginia-based Capital One and other proponents say the deal

could boost card payments competition but opponents fear it will

reduce services, increase costs for Americans and threaten

financial stability by creating another too-big-to-fail bank.

"We believe this acquisition advances financial stability

and increases competition in the industry, while also providing

significant new benefits in the communities in which we

operate," said Fairbank in opening remarks at the all-day

hearing.

The Federal Reserve and Office of the Comptroller of the

Currency (OCC), which are under political pressure to be tough

on mergers, are holding Friday's meeting in a rare move reserved

for the most contentious merger reviews.

The meeting offers a forum for the public to weigh in on the

deal, giving opponents an opportunity to ramp up pressure on

regulators.

Top congressional Democrat Maxine Waters was scheduled to

speak against the deal, according to the Fed's agenda, along

with a slew of community and advocacy groups.

"This merger is a terrible, horrible, no good, very bad

idea," said Jesse Van Tol, CEO of the National Community

Reinvestment Coalition, a powerful coalition of nonprofits. He

cited financial stability concerns and worries the deal would

ultimately hurt consumers.

Reuters reported on Wednesday that Capital One had committed

$265 billion over five years to lending, philanthropy and

investment if the takeover goes through, as it tries to appease

critics and win over regulators.

That community benefits plan is more than twice as big as

any to date, according the NCRC which negotiated all previous

plans. Van Tol dismissed the plan on Friday, saying it largely

comprises credit card and auto lending that the banks already

provide.

Speaking to Reuters this week, Andres Navarrete, Capital

One's head of external affairs, said he believed the regulators

care deeply about the plan, and that credit card and auto loans

are key products for consumers that meet essential needs.

The Fed and OCC assess the deal's impact on the convenience

and needs of affected communities, as well as financial

stability, and competition, among other issues. The Justice

Department also provides its view on the antitrust implications.

That process could take several more months, said regulatory

experts.

Beyond Capital One and Discover executives, several Virginia

state lawmakers and advocacy groups are expected to speak in

favor of the deal, according to the agenda. Vocal support from

civil rights or community groups could be helpful for Capital

One.

"Community support ... positively affects the regulators'

views of the transaction," said Chip MacDonald, an M&A lawyer

and managing director at MacDonald Partners.

"Where antitrust concerns are present, this could also be a

basis for a bank regulator finding that the public benefits of

the merger outweigh the competitive concerns."