States Challenge Capital One Settlement, Alleging $2 Billion Shortfall for Savers

A coalition of 18 state attorneys general is fighting a proposed class action settlement with Capital One. They argue the deal severely shortchanges customers. The legal challenge was filed this week in federal court.

The officials claim the settlement fails to provide adequate compensation. They also say it does not force the bank to change its business practices. According to Reuters, the case involves the bank’s popular 360 Savings accounts.

Details of the Alleged “Two-Tiered” System

The dispute centers on how Capital One managed interest rates. As the Federal Reserve raised rates, the bank kept rates low on existing 360 Savings accounts. Meanwhile, it launched a new product called 360 Performance Savings.

The new account offered much higher yields to new customers. At one point, the new account’s rate was over 14 times higher. The attorneys general allege this created an unfair two-tiered system.

This practice allegedly deprived long-term customers of over $2 billion in interest. The states’ court filing calls this a deceptive practice. The bank marketed the original accounts as having competitive rates.

Why the $125 Million Settlement is Deemed Inadequate

The proposed settlement would pay $125 million to affected customers. The coalition of states calls this amount “woefully inadequate.” They calculate it represents less than 7.5% of the alleged lost interest.

For the average customer, the loss is estimated at more than $717. The settlement would provide less than $54 per person. Maryland Attorney General Anthony Brown said the deal does not make consumers financially whole.

Another major concern is the settlement’s legal fine print. It would block state attorneys general from pursuing further restitution. This specifically impacts a separate lawsuit filed by the New York Attorney General’s office.

The bipartisan opposition signals serious legal hurdles for the Capital One settlement. The outcome will set a significant precedent for how financial institutions treat loyal customers during periods of rising interest rates.

Info at your fingertips

What is this Capital One lawsuit about?

It involves Capital One’s 360 Savings accounts. States allege the bank kept interest rates artificially low for existing customers while offering much higher rates to new clients. This allegedly cost savers billions.

How much money would the settlement provide?

The proposed class action settlement is for $125 million. State officials argue this is a fraction of the over $2 billion in interest they believe customers are owed.

What should current Capital One customers do?

Customers do not need to take immediate action. They should monitor official communications from the court and Capital One regarding the settlement’s status and any potential claims process.

Which states are involved in the opposition?

Attorneys general from 18 states joined the legal brief. These include Maryland, New York, California, Illinois, Michigan, and Washington, among others.

What happens if the court rejects the settlement?

The case would likely continue. The parties might negotiate a new settlement, or the litigation would proceed toward a trial to determine the outcome.