A bipartisan coalition of 18 U.S. states has urged a federal judge to reject Capital One’s $425 million settlement with depositors who allege they were unfairly deprived of high interest rates. The states argue the proposed agreement allows the bank to continue underpaying its customers. Capital One is a major financial institution that provides a range of banking and credit products to consumers and businesses. Headquartered in McLean, Virginia, it is one of the largest banks in the United States.
Led by New York Attorney General Letitia James, the states voiced their objections in a filing made public on Wednesday in the U.S. District Court in Alexandria, Virginia. Judge David Novak had previously granted preliminary approval to the settlement in June. The settlement, initially proposed on May 16, addresses claims that Capital One froze interest rates at 0.3% on its ‘high interest’ 360 Savings accounts, while simultaneously offering rates exceeding 4% to new customers through similarly named 360 Performance Savings accounts.
Under the proposed settlement, Capital One would pay 360 Savings depositors $300 million to compensate for missed interest, with an additional $125 million earmarked for depositors who maintained their accounts. The bank has denied any wrongdoing. However, the objecting states argue that the 0.78% return for 360 Savings depositors under the settlement is significantly lower than the 3.5% currently offered to 360 Performance Savings depositors.
The states contend that the settlement would save Capital One more than $2.5 billion without requiring any change in its practices, while providing typical depositors with only $54 of the $717 in lost interest. The states are also challenging Capital One’s assertion that the settlement preempts James’ lawsuit on behalf of New Yorkers with 360 Savings accounts. Capital One maintains that it ‘strongly denies’ the depositors’ allegations but considers the $425 million settlement ‘reasonable’ given the potential risks of further litigation. A hearing to consider final settlement approval is scheduled for November 6.
