Dive Brief:

• The Consumer Financial Protection Bureau is weighing an enforcement action against Capital One related to online savings accounts that have drawn litigation, the bank said Thursday in its latest quarterly filing with the Securities and Exchange Commission.
• Customers who sued said Capital One led them to believe they were receiving a higher percentage yield than they actually were.
• The bank said it received a civil investigative demand on the matter from the CFPB in August. The bureau notified the McLean, Virginia-based lender last month that it’s considering an enforcement action “on similar grounds” as claims made in the lawsuit. Capital One is responding to the letter, “and it is possible the CFPB will pursue an enforcement action, including possible litigation,” the company said Thursday.

Dive Insight:

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

Savings account holders filed a class-action lawsuit 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 began offering a savings account with higher yield but didn’t tell legacy customers, plaintiffs said. 

At issue is a savings account offering that stemmed 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 Savings account holders at Capital One.

In 2019, Capital One rolled out a 360 Performance Savings account, offering a higher rate than the 360 Savings account – 1.90%, compared with 1.00% – and stopped offering the legacy account on the lender’s website, plaintiffs said. 

Customers with the legacy accounts lost millions of dollars of interest, particularly as interest rates began rising in 2022, because Capital One didn’t notify them that the newer savings account offered the higher yield, according to the suit. 

“Capital One did not notify its 360 Savings accountholders 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 of interest than the 360 Savings account,” the court filing said. “Instead, Capital One left its 360 Savings accountholders in lower-yield account and hoped that they would not notice.” 

Capital One has said it noted the annual percentage yield on its legacy account in customers’ monthly statements, and its contracts specify it maintains the right to alter interest rates at its discretion, according to a filing on behalf of the company.  

“Since the original suit, 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 in March sought to consolidate the lawsuits to the Eastern District of Virginia, a move that was granted 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 noted. 

The CFPB declined to comment Friday. 

Effect on the merger?

Meanwhile, Capital One awaits regulatory approvals of its pending $35.3 billion acquisition of card issuer and network Discover. The proposed combination needs sign-off from the Federal Reserve and the Office of the Comptroller of the Currency; the Justice Department is also assessing the takeover’s potential effects on competition. 

Although the CFPB isn’t one of the federal agencies reviewing the deal, Director Rohit Chopra has said claims that the deal would inject competition into the Visa- and Mastercard-dominated credit-card market need to be assessed “very skeptically.” 

New York Attorney General Letitia James added to the scrutiny of the deal last week, asking a judge to issue Capital One a subpoena related to her office’s antitrust probe of the proposed merger. 

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

TD Cowen analyst Jaret Seiberg said he doesn’t expect the CFPB matter to affect Capital One’s proposed acquisition of Discover, “as private lawsuits regarding the savings account dispute were filed before the deal was announced.” He also noted the CFPB doesn’t have a “formal role” in reviewing mergers. 

“It is hard for us to believe the bank would have proceeded with a deal it knew would be contentious if it saw this as a real threat,” he wrote in a Thursday note. “We would be surprised if this CFPB probe had anything to do with Capital One's announcing the deal would not close this year. Finishing the deal in December always was a stretch.”