NY attorney general sues Capital One over savings accounts

Michael Nagle/Bloomberg

Capital One Financial was sued Wednesday by New York Attorney General Letitia James for allegedly misleading savings-account customers and hiding higher interest rates from them.

In filing the lawsuit, the attorney general's office picks up where the federal government left off. In February, the Consumer Financial Protection Bureau dismissed a similar lawsuit it had filed against Capital One, accusing it of cheating long-standing customers out of more than $2 billion in interest by refusing to honor higher interest rates that were being paid to new customers.

Now the attorney general's lawsuit is accusing Capital One of deliberately deceiving customers about the existence of two nearly identical online savings accounts, 360 Savings and 360 Performance Savings, that paid different interest rates. The suit alleges that Capital One "created confusion" by not telling customers with 360 Savings accounts that they needed to open a 360 Performance Savings account in order to receive higher rates going forward.

"Capital One assured high returns with no catches, then pulled the rug out from under their customers and hoped nobody would notice," James said Wednesday in a press release. "Big banks are not allowed to cheat their customers with false advertising and misleading promises."

The lawsuit, which was filed in the U.S. District Court for the Southern District of New York, seeks to impose civil monetary penalties on Capital One and requests that the bank award monetary relief to affected customers to make up for "fraudulent and illegal practices" in which the bank engaged.

In an email, a spokesperson for Capital One said the $493.6 billion-asset company disagrees with the attorney general's claims and plans to "vigorously defend" itself in court.

The 360 Performance Savings account "was marketed widely, including on national television, and has always been available in just minutes to all new and existing customers," the spokesperson said.

Capital One, which won regulatory approval last month to acquire Discover Financial Services in a deal that will make it the largest U.S. credit card lender, has been facing scrutiny over its 360 Savings and 360 Performance Savings accounts since at least November 2023, when it was sued by Capital One customers who previously had online high-yield savings accounts with ING Direct USA, which Capital One bought in 2012. Those accounts became 360 Savings accounts.

The lawsuit, which sought class action status in federal court in Virginia, argued that McLean, Virginia-based Capital One acted deceptively, dishonestly and unfairly by creating a new high-yield savings account in 2019 called 360 Performance Savings, rather than raising the rates it was paying on the long-standing 360 Savings accounts. The bank later sought the dismissal of the lawsuit, arguing that the annual percentage yield on its Savings 360 account was disclosed to its customers in monthly statements and pointing to its right to change interest rates at any time.

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In November, Capital One's request to dismiss the case was denied, according to Wolf Popper, the law firm that's serving as lead counsel and interim class counsel for the plaintiffs. The Virginia trial is expected to begin on July 21 and run through Aug. 8, Wolf Popper said in an update.

The CFPB made its case against Capital One in January, arguing that the bank was "cheating families" by paying 360 Savings customers an interest rate of 0.3% — even as it paid 4.35% to customers with 360 Performance Savings accounts. But just weeks after the CFPB filed the lawsuit — and following Donald Trump's return to the White House — the agency dropped it and began reversing course on several CFPB actions taken during the Biden administration.

Since February, the agency has dismissed 21 out of a total of 38 pending enforcement actions that it inherited from the Biden era, including 19 brought by former CFPB Director Rohit Chopra.

The New York attorney general's office said its lawsuit against the bank is an effort to "ensure that Capital One does not escape accountability" following the CFPB's decision to voluntarily drop its case.