Capital One warns of possible CFPB enforcement action

Diving:

• The Consumer Financial Protection Bureau is weighing an enforcement action against Capital One related to online savings accounts that have drawn litigation, the bank announced Thursday. last quarterly deposit with the Securities and Exchange Commission.
• The customers who sued said Capital One led them to believe they were getting a higher percentage return than they actually did.
• The bank said it received a request for a civil investigation into the matter from the CFPB in August. The bureau notified the McLean, Va.-based lender last month that it was considering a foreclosure action “on similar grounds” to those raised in the lawsuit. Capital One is responding to the letter, “and the CFPB may pursue enforcement action, including possible litigation,” the company said Thursday.

Diving Perspective:

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

Savings account holders have filed a collective process against Capital One in the U.S. District Court for the Eastern District of Virginia in July 2023, accusing the bank of breach of contract, among other things, because the bank started offering a higher-yielding savings account but didn’t tell them to old customers, said complainants.

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

In 2019, Capital One launched a 360 Performance Savings account, offering a higher rate than the 360 ​​Savings account — 1.90%, compared to 1.00% — and stopped offering the legacy account on the lender’s website, they said the plaintiffs.

Customers with the old accounts lost millions of dollars in interest, especially as interest rates began to rise in 2022, because Capital One failed to notify them that the new savings account offered a higher return, according to the lawsuit.

“Capital One failed to notify 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 higher interest rate than the 360 ​​savings account,” the court filing states. “Instead, Capital One left its 360 savings account holders in a lower-yielding account and hoped they wouldn’t notice.”

Capital One said it noted the annual percentage return on its legacy account on customers’ monthly statements, and its contracts specify that it retains the right to change interest rates at its discretion, according to a file on behalf of the company.

“Since the original 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.

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

The CFPB declined to comment Friday.

Effect on the merger?

Meanwhile, Capital One is awaiting pending regulatory approvals The $35.3 billion acquisition of the Discover card issuer and network. The proposed combination requires Federal Reserve and Office of the Comptroller of the Currency approval; The Justice Department is also evaluating the takeover’s potential effects on competition.

Although the CFPB is not one of the federal agencies reviewing the settlement, Director Rohit Chopra said claims that the business would inject competition in the credit card market dominated by Visa and Mastercard must be assessed “very skeptical”.

New York Attorney General Letitia James added to the analysis of the settlement last weekasking a judge to issue Capital One with a subpoena 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 of closing the deal late this year or early next.

TD Cowen analyst Jaret Seiberg said he doesn’t expect the CFPB issue to affect Capital One’s proposed acquisition of Discover “because the private lawsuits over the savings account dispute were filed before the deal was announced.” . He also noted that the CFPB has no “formal role” in merger review.

“We find it hard to believe that the bank would have entered into a deal that it knew would be controversial if it had seen 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. Getting the deal done in December was always going to be a problem.”