capital one (COF) one of the largest banks in the US with more than 100 million customers, recently saw an increase in profits.
The company's third-quarter 2024 earnings report revealed that it generated total net revenue of $10 billion, an increase of 5% compared to the same period in 2023.
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Capital One faced higher profits in lending categories such as credit cards, automobiles, consumer banking, etc.
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As Capital One benefits from strong growth, it now faces a lawsuit from the Consumer Financial Protection Bureau (CFPB) for allegedly “defrauding” its customers out of $2 billion.
Capital One accused of illegally misleading customers
In 2013, Capital One introduced its “360 Savings” account, claiming in ads that the account had the “best” and “highest” interest rates in the country.
High interest rates are ideal for savings accounts because interest is the amount of money a bank pays on a customer's deposit. The higher the interest rate, the faster the money in the savings account will grow.
Despite advertising high interest rates for 360 savings accounts, the CFPB alleges Capital One “illegally misled” customers, alleging the bank froze its interest rate at a low level during a time when rates were rising at the national level.
During that same period, in 2019, Capital One also introduced its “360 Performance Savings” product, which the CFPB says is “virtually identical” to 360 Savings.
The only difference between both products is that the bank pays more interest for the Performance version. At one point, the bank allegedly paid an interest rate on 360 Performance Savings accounts that was 14 times higher than the 360 Savings rate, according to the CFPB.
“From late 2019 to mid-2024, Capital One lowered and then froze the 360 Savings Account rate to just 0.30%, even as rates rose nationwide,” the CFPB said in a statement. Press release. “In contrast, starting in early 2022, Capital One increased the rate on the 360 Performance Savings account. In fact, the rate went from 0.40% in April 2022 to 3.30% as of January 2023 and 4.35% as of January 2024.”
How Capital One Allegedly Kept Its New Product From 360 Savings Customers
The CFPB alleges that Capital One deliberately kept customers with 360 Savings accounts “in the dark” about its new 360 Performance Savings product.
The bank allegedly achieved this by naming and marketing both products similarly and quietly removing “almost all” references to 360 Savings on its website, replacing them with references to 360 Performance Savings.
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Capital One also allegedly “excluded” 360 Savings account holders from a marketing campaign advertising 360 Performance Savings to its other existing customers.
The CFPB also claims that the bank “prohibited its employees” from proactively informing customers with 360 savings accounts about 360 Performance Savings.
These actions allegedly allowed Capital One to avoid paying millions of customers more than $2 billion in additional interest.
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“The CFPB is suing Capital One for defrauding families of billions of dollars in their savings accounts,” CFPB Director Rohit Chopra said in the news release. “Banks should not harass people with promises they cannot keep.”
In a statement to TheStreet, a Capital One spokesperson said the 360 Performance Savings product was “marketed widely, including on national television.”
“We are deeply disappointed to see the CFPB continue its recent pattern of filing last-minute lawsuits before a change in administration,” the spokesperson said. “We strongly disagree with their claims and will vigorously defend ourselves in court.”
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