3 observations on Trump Organization suing Capital One for closing accounts

The Trump family business is suing Capital One (NYSE: COF) over the bank’s decision to close its accounts in June 2021, claiming the move caused financial harm and violated consumer protection laws. In a note Tuesday, analysts at TD Cowen assessed the move.

TD Cowen stated that while they do not see the lawsuit affecting Capital One’s pending acquisition of Discover, they believe it raises broader legal questions regarding “debanking that we believe Congress must answer to clarify liability risk for banks.”

Merger impact

“We do not expect this lawsuit to derail Capital One’s acquisition of Discover as the regulatory and antitrust reviews should be divorced from private litigation,” TD Cowen analysts stated.

The firm emphasized that “the merger review is based on the legal requirements of the Bank Merger Act and the antitrust laws” and does not depend on private lawsuits.

Capital One’s legal position

TD Cowen believes “Capital One should win the lawsuit if it opts to fight rather than to settle.”

The analysts noted that banks generally have the discretion to determine when “the risk of serving a specific customer is too great.”

They add that if the Trump family business prevails, “it would appear to us that banks would lose this discretion” and could face difficulty closing accounts even in cases where legal liability is a concern.

Growing legal and policy implications

TD Cowen believes the lawsuit highlights the need for a clearer legislative framework, as “a legislative framework that spells out the discretion banks possess and the disclosure they must make would be preferable to having the courts determine what the policy should be.”

TD Cowen expects further litigation on debanking and believes “legal clarity” could help mitigate future lawsuits.

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