UPDATE: This story includes reactions from a Washington policy analyst and the president and CEO of the National Community Reinvestment Coalition.
The Consumer Financial Protection Bureau is considering an enforcement action against Capital One Financial in connection with online savings accounts that allegedly tricked some consumers into believing they were receiving high rates.
The CFPB notified Capital One about the potential enforcement action earlier this month, the McLean, Virginia-based company disclosed in a securities filing late Thursday.
Capital One now has the opportunity to respond to the CFPB's letter, which came roughly two months after the bureau sent a civil investigative demand to the company in connection with the online savings accounts.
"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 an email.
In its securities filing, Capital One said that a total of seven lawsuits have been brought against the bank on behalf of online savings customers.
The lawsuits, which have sought class-action status, grew out of a move that Capital One made after it acquired ING Direct USA in 2012. The high-yield online savings accounts of ING Direct customers became "360 Savings" accounts the following year.
As of September 2019, Capital One was paying 1.00% on the "360 Savings" account, according to
"Capital One's conduct caused its 360 Savings account holders to lose millions of dollars of interest in the aggregate since September 2019, and especially since interest rates began rising rapidly in March of 2022," the lawsuit states.
By October 2023, Capital One customers with "360 Performance Savings" accounts were receiving 4.30%, while "360 Savings" customers were getting 0.30%, according to the lawsuit, which was filed in federal court in Virginia.
"Capital One did not 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 of interest," lawyers for the plaintiffs wrote.
Last November, Capital One asked a judge
In Capital One's securities filing on Thursday, the bank said that the seven lawsuits have been consolidated in the Eastern District of Virginia, and that a trial has been scheduled for July 2024.
"We filed a motion to dismiss the consolidated complaint, which is fully briefed and pending with the court," Capital One said in the filing.
The bank's disclosure about a possible enforcement action comes as Capital One is seeking the government's approval for its blockbuster proposed acquisition of Discover Financial Services. That $35 billion deal is drawing antitrust scrutiny.
Capital One CEO Richard Fairbank acknowledged last week that the Discover deal
Jaret Seiberg, an analyst at TD Cowen Washington Research Group, wrote in a note to clients that he doesn't expect the CFPB's investigation to impact the Discover acquisition. He still expects the deal to close in the first quarter of 2025.
"We do not see this as holding up the deal. The CFPB does not have a formal role in reviewing the transaction. In addition, there is nothing new here. Details of this dispute were public prior to ... Capital One agreeing to acquire Discover," Seiberg wrote.
Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition, which opposes the Capital One-Discover merger, said that he wants to hear about which laws the CFPB believes Capital One has broken.
He noted that the Office of the Comptroller of the Currency, which does have a role in assessing the Capital One-Discover deal,
"I look forward to finding out how OCC officials react," Van Tol said in a written statement, "since they just rewrote their enforcement manual to note that serial or pending enforcement actions are grounds for blocking a merger."
