Capital One sued by NY Attorney General over savings account interest rates

Investing.com -- New York Attorney General Letitia James filed a lawsuit against Capital One N.A. and Capital One Financial Corporation (NYSE:COF) today. The lawsuit accuses the bank of defrauding its online savings account customers by denying them millions of dollars in interest payments. The bank is alleged to have marketed its "360 Savings" accounts as high-interest accounts with competitive rates, while in reality, it kept the interest rates for these accounts artificially low as interest rates rose across the nation.

The lawsuit further alleges that Capital One launched a nearly identical savings account called "360 Performance Savings," which offered significantly higher interest rates, over 14 times higher at one point. However, the bank is accused of intentionally misleading its 360 Savings customers about the existence of the 360 Performance Savings product, thereby avoiding paying them millions of dollars in interest.

The lawsuit aims to hold Capital One accountable and seeks restitution for consumers who were misled about the interest they were earning. In a statement, Attorney General James said that big banks are not permitted to cheat their customers with false advertising and misleading promises.

The lawsuit alleges that in September 2019, Capital One introduced the 360 Performance Savings account, which offered much higher interest rates. As national interest rates began to rise in 2022, Capital One maintained a 0.3 percent rate for its 360 Savings account while increasing the rate for its 360 Performance Savings account to as high as 4.35 percent. Instead of informing 360 Savings customers about the new product, Capital One allegedly kept them uninformed.

The lawsuit further alleges that Capital One instructed its employees not to inform 360 Savings customers about the new product unless they specifically asked. The bank is also accused of removing 360 Savings from its website and replacing it entirely with 360 Performance Savings, effectively creating a two-tier system of savings accounts where only new accounts received the advertised high interest rates.

According to the lawsuit, this resulted in significant losses for customers who remained in 360 Savings accounts. An example provided in the lawsuit shows that a customer who deposited $10,000 in a 360 Savings account in September 2019 would have earned $186 of interest after five years. In contrast, if the same customer had switched to a 360 Performance Savings account, they would have earned $1,090 of interest over the same period. Overall, New York customers lost out on millions of dollars of interest, while Capital One profited from the difference.

The lawsuit alleges that Capital One’s actions violate state and federal law by misleading customers about the interest rate for 360 Savings accounts and whether it was Capital One’s only high-interest savings account. The Consumer Financial Protection Bureau had previously sued Capital One in January over similar allegations, but voluntarily dropped its lawsuit after a change in leadership. The action brought by Attorney General James seeks restitution and damages for all affected Capital One customers, disgorgement of profits Capital One made by illegally misleading its customers, and penalties. The case is being handled by Assistant Attorney General Jason E. Meade with the Consumer Frauds and Protection Bureau.

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