Capital One warns of possible CFPB enforcement action

Dive Summary:

• The Consumer Financial Protection Bureau is considering an enforcement action against Capital One related to the online savings accounts that are the subject of the lawsuit, the bank said Thursday. most recent quarterly filing With the Securities and Exchange Commission.
• The customers who filed the lawsuit said Capital One misled them into believing they were getting a higher percentage return than they actually were.
• The bank said it received a request for a civil investigation into the matter from the CFPB in August. The bureau notified the McLean, Virginia-based lender last month that it was considering enforcement action “on similar grounds” to the allegations made in the lawsuit. The company said in a statement Thursday that Capital One had responded to the letter and that “it is possible that the CFPB may take enforcement action, including possible litigation.”

Diving Information:

“This investigation relates to a previously reported class action lawsuit filed in 2023 for which we filed a motion to dismiss,” a Capital One spokesperson said in an email Friday.

Savings account holders applied class action lawsuit The lawsuit was filed against Capital One in the U.S. District Court for the Eastern District of Virginia in July 2023, accusing the bank of, among other things, breach of contract because the bank began offering a higher-yield savings account but did not tell former customers, the plaintiffs. in question.

At issue is a savings account offering stemming from Capital One’s 2012 acquisition of ING Direct USA. ING Direct offered a high-yield savings account, and upon acquisition, those account holders became 360 ​​Savings accounts with Capital One.

The plaintiffs said Capital One introduced a 360 Performance Savings account in 2019 that offered a higher rate than the 360 ​​Savings account (1.90 percent compared to 1.00 percent) and stopped offering the former account on the lender’s website.

According to the lawsuit, customers with old accounts lost millions of dollars in interest, especially when interest rates started rising in 2022, because Capital One failed to inform them that the new savings account offered a higher return.

“Capital One failed to notify 360 Savings account holders that a 360 Performance Savings account existed, that 360 Performance Savings was actually a different account and not just another name for a 360 Savings account, or that 360 Performance Savings paid a higher rate. “Instead, Capital One left 360 Savings account holders in the lower-yielding account and hoped they wouldn’t notice.”

Capital One stated that it stated the annual return percentage on the old account in customers’ monthly statements and that it reserves the right to change interest rates at its discretion in its contracts. an application on behalf of the company.

“Since the initial lawsuit, we have also been sued in six similar class actions in federal courts in California, Illinois, Ohio, Virginia, New Jersey and New York,” Capital One said.

The company sought to consolidate the cases in the Eastern District of Virginia in March, and that effort was granted in June. A consolidated complaint was filed by the plaintiffs in July and a trial date was set for July 2025. The filing stated that Capital One filed a motion to dismiss the complaint.

The CFPB declined to comment Friday.

Effect on merger?

Meanwhile, Capital One awaits regulatory approvals of its pending investments $35.3 billion acquisition of card issuer and network Discover. Recommended combination It needs approval from the Federal Reserve and the Office of the Comptroller of the Currency; The Ministry of Justice is also evaluating the potential effects of the acquisition on competition.

Although the CFPB is not one of the federal agencies reviewing the deal, Director Rohit Chopra said: claims that the agreement will be reached inject competition Attempts into the credit card market, dominated by Visa and Mastercard, should be viewed with “highly skepticism”.

New York Attorney General Letitia James added to review of settlement last weekasked a judge to issue a subpoena to Capital One related to his office’s antitrust investigation into the proposed merger.

Capital One CEO Richard Fairbank said last week: The company currently expects a closing in early 2025, a change from its previous expectation for the deal to close late this year or early next year.

TD Cowen analyst Jaret Seiberg said he doesn’t expect the CFPB matter to impact Capital One’s proposed acquisition of Discover because “private litigation related to the savings account dispute was filed before the deal was announced.” He also noted that the CFPB has “no formal role” in reviewing mergers.

“It is hard for us to believe that the bank would proceed with a deal that it knows will be contentious if it sees this as a real threat,” he wrote in a note Thursday. “We would be surprised if this CFPB investigation had anything to do with Capital One’s announcement that the deal would not close this year. “Closing the deal in December was always a challenge.”