In a significant legal development, Capital One has agreed to a $425 million settlement to resolve a class action lawsuit alleging that the bank misled customers by advertising its 360 Savings accounts as "high-interest" while offering substantially better rates to new customers through a different product.

Background of the Case

The lawsuit, filed in the U.S. District Court for the Eastern District of Virginia, claimed that Capital One kept the interest rate for its 360 Savings accounts at 0.30% from late 2019 to mid-2024. Meanwhile, the bank introduced a new product, the 360 Performance Savings account, which offered rates as high as 4.35%. Existing customers were allegedly not informed about the new account or the higher interest rates available.

The plaintiffs argued that Capital One's actions violated the Truth in Savings Act and constituted deceptive practices by obscuring the existence of the higher-yielding 360 Performance Savings account from existing customers. The lawsuit also alleged that Capital One instructed its employees not to proactively inform customers about the more lucrative savings option unless directly asked.

Settlement Details

Under the terms of the settlement:

• $300 million will be allocated to former 360 Savings account holders to cover unrealised interest.

• An additional $125 million will be distributed to current account holders.

• The settlement covers individuals who held 360 Savings accounts at any time since September 18, 2019.

Capital One did not admit any wrongdoing as part of the settlement agreement. The settlement, which still requires judicial approval, aims to compensate affected customers for the interest they lost due to the bank's alleged deceptive practices.

Regulatory Actions and Ongoing Scrutiny

The Consumer Financial Protection Bureau (CFPB) had previously filed a lawsuit against Capital One, alleging that the bank misled consumers about the interest rates of its savings accounts, resulting in over $2 billion in lost interest payments. The CFPB claimed that Capital One violated the Truth in Savings Act and engaged in deceptive practices by obscuring the existence of the higher-yielding 360 Performance Savings account from existing customers.

However, in February 2025, the CFPB voluntarily dismissed its lawsuit against Capital One, following a change in leadership after Donald Trump's return to office. The dismissal of the lawsuit raised concerns among consumer advocacy groups about the future of CFPB's enforcement efforts.

Additionally, New York Attorney General Letitia James filed a separate lawsuit accusing Capital One of violating consumer protection laws in the state by failing to inform customers about the more lucrative savings option. The lawsuit alleges that Capital One's actions deprived customers of significant interest earnings and seeks civil penalties and restitution.

International Legal Insight

Providing a global legal context, Sunil Ambalavelil, the Chairman of Kaden Boriss and a reputable finance lawyer in Dubai, offered this perspective:

“This case points out the urgent need for transparency and fair dealing in the financial services industry. Financial institutions must ensure that their marketing practices do not mislead consumers, especially when introducing new products that may offer better terms. The legal ramifications of such practices can be significant, not only in terms of financial penalties but also in reputational damage.”

Implications for the Financial Industry

The settlement and ongoing regulatory actions emphasise the need for financial institutions to maintain clear and honest communication with their customers. As banks continue to develop new products and services, ensuring that existing customers are informed about their options is essential to maintain trust and comply with legal obligations.

Summary

The $425 million settlement serves as a reminder of the legal and ethical responsibilities financial institutions have toward their customers. While regulatory bodies continue to scrutinise banking practices, transparency and fairness remain paramount for maintaining consumer trust and avoiding legal repercussions. It’s essential to provide adequate disclosures and adhere to consumer protection laws.

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