190 million Americans have a credit card, and in 2022, 91 million of those cardholders paid interest on a revolving balance.

Credit card borrowing can be expensive. In 2022, total credit card interest and fees added up to $130 billion, averaging just over $1,000 for each family in the United States.

Two of the nation’s largest credit card companies, Capital One
COF
and Discover, announced plans to merge in February. To merge, they’ll need approval from bank regulators and the United States Department of Justice.

Here’s what you need to know about the interest rates Capital One and Discover currently charge, and how that pricing could change if the two companies are allowed to merge.

Capital One charges higher interest rates than Discover

Capital One is well known for extending credit to customers with lower credit scores, including Americans who have defaulted on loans, declared bankruptcy, or are struggling to make ends meet.

All of the major credit card issuers charge these “subprime” consumers higher interest rates or simply decline to lend to them at all. As of data provided to federal bank regulators in July 2023, Capital One’s top interest rate is 31.74%, higher than Discover’s top interest rate of 27.74%, and the highest interest rate of America’s largest credit card issuer, JPMorgan Chase
JPM
, 28.99%.

But Capital One also charges higher interest rates to customers with average and great credit scores, compared to Discover, and compared to most other credit card companies.

According to data collected by the Consumer Financial Protection Bureau, customers with great credit scores, above 720, typically get interest rates around 23% at Discover, but 26% at Capital One. That means a customer with a great credit score, and $10,000 of debt, would pay roughly $300 more per year as a Capital One customer than as a Discover customer.

After a merger, Capital One would have the option of raising existing Discover customers’ interest rates to match the Capital One rates – a move that industry experts call “forward repricing.” It’s called “forward repricing” because those higher interest rates would only apply to new purchases the cardholder makes; Capital One would not be able to change the interest rate the cardholder is paying on the balance he’s already accrued.

Capital One and Discover have the same target customer – middle-class people who pay credit card interest

After a merger, the combined Capital One-Discover company would be the biggest credit card issuer in the United States, with $250 billion in balances, making them 23% bigger than the current largest company, JPMorgan Chase.

Roughly 48 million American adults have credit scores below 660, which means they aren’t eligible for every credit card – especially the higher-end cards offered by JPMorgan Chase and American Express
AXP
, which are both known for catering to higher-end clientele.

According to data from Comperemedia, a Mintel company, between 2019 and 2023, Capital One sent more direct mail to Americans with credit scores between 621 and 660 – sometimes called “near prime” – than any other issuer. Discover is the only other “mainstream” credit card issuer that sent a significant number of direct mail offers to near prime consumers between 2019 and 2023.

American Express and big banks like Citi, Chase, Bank of America
BAC
, U.S. Bank and Wells Fargo
WFC
each sent at least 300 million direct mail credit card offers during this time period, but limited most of their marketing to customers with higher credit scores.

A small percentage of credit card applications are directly tied to a pre-approved direct mail offer – but this marketing channel is unique because these offers can be highly personalized, unlike the commercials Americans watch on TV. As a result, these direct mail offers are a good way of identifying a bank’s set of target customers.

A combined Capital One-Discover would also be a powerhouse in the prime credit card market, likely overtaking Citibank’s top spot among customers with good (but not great) credit scores.

Chase, currently the largest U.S. credit card issuer issuer, pursues a different customer profile than Discover and Capital One.

A report by the Consumer Financial Protection Bureau found that customers with prime and near prime credit scores spend less money on new credit card purchases than customers with excellent credit, but pay more interest and fees because they’re less likely to pay their bills in full each month. Their report found roughly 20% of Americans with prime or near prime credit scores paid only the minimum payment on their credit cards, while only 5% of customers with the highest credit scores made only the minimum payment.

If a combined Capital One-Discover bank gets a dominant position in the market for “revolvers” — consumers who borrow money on their credit card — their outsize market share could position them to raise interest rates.

“Evidence that this deal could lead to higher credit card costs for Americans should ring alarm bells for bank regulators,” said Shahid Naeem, Senior Policy Analyst at the American Economic Liberties Project. “Antitrust enforcers will take a keen eye to any indication that Capital One and Discover compete head-to-head. Expect this deal to earn serious regulatory scrutiny.”