States oppose Capital One $425 million settlement over rates

Capital One Financial Corp.’s proposed $425 million settlement of a class-action suit over allegedly unpaid savings-account interest is being opposed by a bipartisan group of states who say the deal shortchanges account holders.

The settlement is too low for customers who lost more than $2 billion and fails to impose any requirements that Capital One stop misleading consumers, New York Attorney General Letitia James, who is leading the states, said in a statement.

The 18 states that filed a joint opposition to the accord on Wednesday in federal court in Virginia aren’t involved in the case filed on behalf of customers, but the judge may still take their arguments into account.

The allegations mirror claims that James made in a May lawsuit on behalf of New Yorkers who used Capital One’s online 360 Savings accounts. The Consumer Financial Protection Bureau had filed a similar case against Capital One in January, just as President Joe Biden was leaving office. But that suit was abandoned by the Trump administration the next month.

“Capital One customers worked hard for their savings, only to be misled and cheated out of billions of dollars in interest payments that their bank had promised them,” said James, a Democrat. “Now, Capital One is pushing a settlement agreement that would let it off the hook for this illegal scheme.”

Most of the attorneys general who signed the brief are Democrats, though two - from Ohio and Louisiana - are Republicans.

“Capital One strongly denies the lawsuit’s allegations,” the bank said in a statement on Wednesday. “However, to avoid the risks and uncertainties associated with prolonged litigation, a reasonable settlement for all parties has been reached with the class action counsel.”

Chet Waldman, a lawyer for the class-action customers, said the settlement avoids the risks of getting a smaller payout from a jury, even if Capital One was held liable.

“We believe that the settlement, which is one of the biggest ever against a bank, is a good deal for 360 Savings account holders given the significant risks of trial and appeal, and we do not believe it makes sense to hold up this settlement based on the New York Attorney General’s later-filed action on behalf of New Yorkers only,” Waldman said in a statement.

According to New York’s suit, Capital One lowered the rate for the 360 Savings account to 0.3% from 1.0% in December 2020 and “kept it frozen there during a period of rising interest rates nationwide,” despite telling customers they’d get “one of the nation’s best savings rates.” Meanwhile, the rate for the bank’s newer “360 Performance Savings” account rose as high as 4.35%.

California’s attorney general, Rob Bonta, put the estimated losses in unpaid interest at $3 billion. In a statement on his decision to join the opposition, he said the proposed agreement could undermine James’ lawsuit in New York, which he supports.

“Her work must not be undermined by a toothless settlement,” Bonta said.

The other states opposing the deal are Arizona, Colorado, Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, Oregon, Rhode Island and Washington.

The case is In re: Capital One 360 Savings Account Interest Rate Litigation; 1:24-md-03111; US District Court for the Eastern District of Virginia