*

Commits $200b to credit card, auto lending over 5 years

*

Plan includes $35b for affordable housing, up 30% over

previous

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Capital One agreed to plan with four community groups,

breaking

from norm

(Adds Fed declined to comment in paragraph 10, Discover loan

sale in paragraph 11, NCRC fair comment in paragraph 20)

By Michelle Price

WASHINGTON, July 17 (Reuters) - Capital One will

commit $265 billion over five years to lending, philanthropy and

investment if its takeover of Discover Financial Services ( DFS )

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 ( USB )

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."