Capital One Faces $2 Billion Lawsuit Over Alleged Customer Deception

Capital One Faces $2 Billion Lawsuit Over Alleged Customer Deception

Edited by: Fern Sidman

Capital One, one of the largest banks in the United States, is facing serious allegations of deceptive practices related to its high-yield savings accounts. According to a lawsuit filed on Tuesday by the Consumer Financial Protection Bureau (CFPB), these practices cost depositors more than $2 billion over several years. The New York Times reported that the lawsuit has raised questions about the transparency of financial products marketed as offering competitive interest rates.

Capital One’s advertising for its high-yield savings accounts promised no fees, no minimum deposits, and higher interest earnings compared to traditional savings accounts. “What’s the catch? There is none,” the bank boldly claimed. However, as detailed in the lawsuit, there was indeed a catch: the bank allegedly kept interest rates for these accounts artificially low, offering just 0.30% annually last summer, even as the Federal Reserve’s benchmark rates exceeded 5%.

While banks are generally allowed to set their interest rates as low as customers will tolerate, the CFPB alleges that Capital One’s actions went beyond mere rate-setting. According to the information provided in The New York Times report, the bank created confusion by operating two nearly identical account options: the 360 Savings account and the 360 Performance Savings account. The key difference between the two was the higher interest rate offered by the latter, but the CFPB claims Capital One deliberately obscured this distinction. Employees were allegedly forbidden from informing existing customers about the 360 Performance Savings account or marketing it to them, a practice the bureau described as “deceptive, abusive, and illegal.”

“The only thing that has ever meaningfully distinguished 360 Performance Savings from 360 Savings is the former product’s higher interest rate,” the lawsuit stated. The New York Times notes that this lack of transparency undermined customers’ ability to make informed decisions about their savings.

In response to the lawsuit, Sie Soheili, a spokesperson for Capital One, declined to address the specific allegations but stated that the bank disagreed with the claims and planned to contest them in court. The New York Times report highlighted that this legal battle comes at a pivotal moment for Capital One, which is currently working to finalize its acquisition of the credit-card issuer Discover.

The Consumer Financial Protection Bureau (CFPB) has accelerated its regulatory and enforcement actions in the weeks leading up to the inauguration of President-elect Donald J. Trump, signaling a flurry of last-minute activity. According to the information contained in The New York Times report, the agency has filed lawsuits or introduced significant rule changes against major financial institutions almost every working day over the past month, placing a focus on its active role in policing financial misconduct despite looming political changes.

 The CFPB, established in 2011 to safeguard consumer interests, has long been a target of Republican criticism. Many lawmakers have labeled it a prime example of bureaucratic overreach, with calls to curtail or even dismantle its powers. Yet, during his first term, Mr. Trump allowed the agency to persist, albeit with reduced influence. As the report in The New York Times indicated, the current regulatory surge comes at a politically charged moment, as the agency seeks to solidify its enforcement legacy under the shadow of potential reforms or restrictions by the incoming administration.

Among its recent actions, the CFPB has targeted Capital One multiple times. This follows a separate case last month, in which the CFPB alleged that Zelle, the popular money-transfer app co-owned by Capital One, failed to adequately protect customers from over $800 million in fraud. The New York Times reported that these lawsuits highlight the agency’s focus on holding financial institutions accountable for consumer harm.

Responding to the regulatory blitz, Sie Soheili, a spokesperson for Capital One, criticized the CFPB’s actions as part of a “recent pattern of filing 11th-hour lawsuits ahead of a change in administration.” The sentiment reflected broader industry frustration with what some perceive as rushed enforcement efforts during the transition period.

However, the CFPB has defended its actions as necessary and legally justified. Tia Elbaum, a spokeswoman for the agency, stated, “Where we see violations of the law, we will take action.” As The the report in The New York Times noted, this stance emphasized the agency’s commitment to enforcing consumer protection laws despite the political uncertainty surrounding its future.

As per the information in The New York Times report, the CFPB’s recent activity serves as a reminder of the ongoing tension between financial regulation and industry autonomy. For financial institutions such as Capital One, these legal battles represent both reputational and operational risks. For consumers, the actions signal a watchdog agency determined to act decisively, even as its authority faces renewed scrutiny.