Capital One warns of possible enforcement action from the CFPB

Dive short:

• The Consumer Financial Protection Bureau is considering an enforcement action against Capital One in connection with online savings accounts that have been the subject of lawsuits, the bank said in its report Thursday. last quarterly tax return with the Securities and Exchange Commission.
• Customers who sued said Capital One led them to believe they were receiving higher returns than they actually did.
• The bank said it received a civil investigative request on the matter from the CFPB in August. The agency told the McLean, Virginia-based lender last month that it is considering an enforcement action “on similar grounds” to the claims made in the lawsuit. Capital One responded to the letter: “and it is possible that the CFPB will pursue enforcement actions, including possible lawsuits,” the company said Thursday.

Diving insight:

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

Savings account holders submitted a class action lawsuit v. Capital One in the U.S. District Court for the Eastern District of Virginia in July 2023, accusing the bank of breach of contract because, among other things, the bank began offering a higher-yield savings account but didn’t tell longtime customers, prosecutors said.

At issue is a savings account offering that arose from Capital One’s acquisition of ING Direct USA in 2012. ING Direct offered a high-yield savings account, and after the acquisition, these account holders became 360 ​​savings account holders at Capital One.

In 2019, Capital One introduced a 360 Performance Savings Account, which offered a higher rate than the 360 ​​Savings Account — 1.90%, up from 1.00% — and stopped offering the old account on the lender’s website, according to the claimants.

Customers with the old accounts lost millions of dollars in interest, especially when rates started to rise in 2022, because Capital One did not notify them that the newer savings account offered the higher returns, the lawsuit said.

“Capital One did not inform its 360 Savings Account holders that the 360 ​​Performance Savings Account was available, that 360 Performance Savings was in fact a different account and not just another name for the 360 ​​Savings Account, or that 360 Performance Savings paid a higher rate. interest than the 360 ​​Savings Account,” the court said. “Instead, Capital One left its 360 savings account holders in a lower-yield account and hoped they wouldn’t notice.”

Capital One has said it has recorded the annual yield on its old account in customers’ monthly statements, and its contracts specify that it reserves the right to change the interest rate at its discretion, Capital One said. a declaration on behalf of the company.

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

The company tried to consolidate lawsuits against the Eastern District of Virginia in March, a move that was approved in June. A consolidated complaint was filed by plaintiffs in July and a trial date has been set for July 2025. Capital One has filed a motion to dismiss the complaint, the filing said.

The CFPB declined to comment Friday.

Consequences for the merger?

Meanwhile, Capital One is awaiting regulatory approval of the pending cases $35.3 billion acquisition of card issuer and network Discover. The proposed combination requires approval from the Federal Reserve and the Office of the Comptroller of the Monet; The Ministry of Justice is also assessing the potential impact of the acquisition on competition.

Although the CFPB is not one of the federal agencies reviewing the deal, director Rohit Chopra said claims the deal would do that inject competition access to the credit card market dominated by Visa and Mastercard should be viewed “very skeptically”.

New York Attorney General Letitia James added to the investigation of the deal last weekasking a judge to issue a subpoena to Capital One regarding her office’s antitrust investigation into the proposed merger.

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

TD Cowen analyst Jaret Seiberg said he does not expect the CFPB case to impact Capital One’s proposed acquisition of Discover, “as private lawsuits related to the savings account dispute were filed before the deal was announced. ” He also noted that the CFPB has no “formal role” in reviewing mergers.

“It is difficult for us to believe that the bank would have entered into a deal that it knew would be controversial if it saw this as a real threat,” he wrote in a note on 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. It was always difficult to complete the deal in December.”