A financial company is being sued by the Consumer Financial Protection Bureau for failing to inform clients about higher-yielding savings accounts.
The Consumer Financial Protection Bureau said Tuesday that Capital One Financial Corp. defrauded consumers of $2 billion by failing to disclose a savings program that offered greater interest rates on their deposits.
According to Rohit Chopra, director of the CFPB, the federal government is suing Capital One because “banks should not be baiting people with promises they can’t live up to.”
Less than a week before President-elect Donald Trump is scheduled to take office, the action was taken in the closing days of the Biden administration.
According to one analyst, the CFPB’s action won’t affect Capital One’s proposed $35 billion merger with Discover Financial Services (DFS) because the alleged misbehavior occurred prior to the announcement of the agreement in February of last year.
Wall Street is also not surprised by the move, given Capital One issued a warning in October that the government might take legal action against company for this reason.
According to the CFPB, customers who enrolled in Capital One’s 2013-launched 360 Savings program were informed that it had some of the highest interest rates in the country.
When the bank introduced its 360 Performance Savings product, which paid up to 14 times higher interest than the similarly named 360 Savings program, the CFPB claimed that the bank failed to notify those clients.
“Capital One did not specifically notify 360 Savings accountholders about the new product, and instead worked to keep them in the dark about these better-paying accounts,” the Consumer Financial Protection Bureau said.
The interest rate on Capital One’s 360 Performance Savings account was raised from 0.4% in April 2022 to 3.3% in January 2023, and the 360 Savings interest rate was lowered to 0.3% and then frozen there from 2019 to 2024.
According to a Capital One representative, the organization is nevertheless “deeply disappointed to see the CFPB continue its recent pattern of filing eleventh-hour lawsuits ahead of a change in administration.”
In an email to MarketWatch, the spokesman claimed that the bank’s 360 Performance Savings product offered the “simplest and most transparent terms in the industry,” a claim that was heavily promoted on national television.
Jaret Seiberg, an analyst at TD Cowen, stated that the CFPB’s action is unlikely to stop Capital One from acquiring Discover Financial.
“We give Capital One the edge as its actions were consistent with customer contracts,” Seiberg wrote in a note to clients, if the case goes to trial.
Given his populist political stance, Trump may decide to drop the CFPB case after taking office on January 20th, but he may also decide to pursue it further, according to Seiberg.
On Tuesday, Capital One’s stock (COF) increased by 1.5%.
In addition to compensating consumers, the CFPB action aims to stop Capital One’s “unlawful conduct” and obtain civil penalties that will be deposited into the CFPB victims’ compensation fund.
According to Mike Litt, director of consumer campaigns at U.S. PIRG, a nonprofit consumer advocacy group, “people put their money into savings accounts for low risk and the best possible rate of return,” Litt told MarketWatch via email. “After committing to an account, consumers shouldn’t have to worry about their bank freezing their interest rate and making efforts to obscure better options.”
The CFPB caught Capital One “red-handed not delivering for their account holders” by charging fresh consumers higher interest rates while reducing interest-rate payments for existing customers, according to Adam Rust, director of financial services at the Consumer Federation of America.
The controversy surrounding the account stems from Capital One’s $9 billion purchase of ING Direct in 2012 and whether the bank was required to continue offering the highest interest rates to account holders despite not being required to do so by contract.
According to Rust, Capital One may not have fulfilled its community benefit obligation in its merger with Discover since it chose a less advantageous course with former ING Direct clients.
According to him, the CFPB has a history of giving back billions of dollars to customers who have received unfair treatment.
“The CFPG is the hardest-working agency in Washington, D.C.,” Rust stated.
