Capital One Financial Corp. secretly kept millions in interest payments from loyal customers while silently offering better rates to new account holders, according to a bombshell lawsuit filed by New York Attorney General Letitia James.
Key Takeaways
- New York’s Attorney General has sued Capital One for maintaining a deceptive “two-tier” savings account system that kept long-time customers locked into low-interest accounts while offering much higher rates to others
- Customers with original “360 Savings” accounts earned as little as 0.30% interest while new “360 Performance Savings” accounts paid up to 4.35%, with the bank allegedly instructing employees not to inform existing customers about better options
- The interest rate disparity meant a $10,000 deposit would earn only $186 in a “360 Savings” account compared to $1,090 in a “360 Performance Savings” account over five years
- Capital One faces the lawsuit as it approaches completion of its $35.3 billion acquisition of Discover Financial Services, with the company’s stock falling 1.9% following the announcement
A Tale of Two Savings Accounts
The lawsuit, filed in federal court in Manhattan on May 14, accuses Capital One of orchestrating a deliberate scheme to deprive customers of higher interest earnings. According to Attorney General James, the banking giant maintained a “two-tier” system that significantly disadvantaged loyal customers who had opened “360 Savings” accounts based on promises of competitive rates. While market interest rates climbed substantially in recent years, Capital One allegedly kept these original account holders trapped at rates as low as 0.30%, while simultaneously offering new customers “360 Performance Savings” accounts with rates up to 4.35%.
The stark difference in earnings potential exposed by the lawsuit is staggering. A customer with $10,000 in the original 360 Savings account would earn a mere $186 over five years, while the same amount in the 360 Performance Savings account would generate $1,090. This disparity represented a quiet but substantial transfer of wealth from loyal customers to Capital One’s bottom line; particularly significant given the bank’s $318 billion in consumer banking deposits as of December 2024 Stated James
Deceptive Marketing Practices Alleged
The core of the Attorney General’s case focuses on Capital One’s marketing claims versus the reality experienced by customers. The bank prominently advertised its original 360 Savings accounts with enticing promises like “Your money will earn much more than what it would in an average savings or money market account…What’s the catch? There is none,” according to Capital One marketing materials cited in the lawsuit. The Attorney General contends these accounts were marketed as offering “high interest” and “one of the nation’s best savings rates.”
“Customers opened and maintained 360 Savings accounts based on Capital One’s promises that they would receive ‘one of the nation’s best savings rates,'” states the complaint.
The lawsuit alleges that Capital One deliberately concealed the existence of higher-yielding accounts from existing customers. More troubling is the claim that bank employees were specifically instructed not to inform 360 Savings customers about the new Performance accounts unless directly asked. This systematic approach prevented many customers from making informed decisions about their finances and maximizing their interest earnings during a period of rising national interest rates.
Capital One Responds as Major Acquisition Looms
Capital One has firmly denied the allegations and pledged to defend itself against the lawsuit. “We strongly disagree with the attorney general’s claims and will vigorously defend ourselves in court,” Capital One said in a statement. The company further claimed its 360 Performance Savings account “has always been available in just minutes to all new and existing customers without any of the usual industry restrictions.”
The timing of the lawsuit is particularly significant as Capital One approaches the May 18 completion date for its massive $35.3 billion acquisition of Discover Financial Services. The legal action has already impacted the company’s market performance, with shares falling 1.9% on the day the lawsuit was announced. Industry analysts note that maintaining customer trust is crucial for retail banking operations, making this lawsuit potentially damaging beyond just the financial penalties being sought.
Legal Battle Follows Earlier Regulatory Action
This isn’t the first time Capital One has faced scrutiny over these savings account practices. The lawsuit comes after the Consumer Financial Protection Bureau previously dropped a similar case following a leadership change. Additionally, Capital One recently settled private litigation regarding the 360 Savings accounts, though the terms of that settlement remain undisclosed. Attorney General James is now seeking both restitution for affected consumers and substantial civil penalties under New York consumer protection laws Stated Letita
The case highlights growing concerns about transparency in banking practices, especially as consumers increasingly rely on online banking services. For conservative consumers already skeptical of large financial institutions, this lawsuit reinforces the importance of vigilance when trusting banks with hard-earned savings. The outcome could potentially force changes in how banks communicate interest rate information to existing customers across the industry.
