Capital One Faces State Challenge to $425M Payout in High-Interest Savings Case

The states say the proposed settlement addresses claims that Capital One froze rates at 0.3% on its so-called “high interest” 360 Savings accounts, even as it offered more than 4% on nahead identical 360 Performance Savings accounts for new customers. Capital One agreed to pay $300 million to depositors for lost interest and an additional $125 million to those still holding accounts, while denying wrongdoing. The states contend this remedy is inadequate and fails to address systemic practices.

According to the filing, the average depositor would receive just $54 of the $717 in interest they lost, equating to a payout of roughly 0.78%—far below the 3.5% that Performance Savings customers currently earn.

Investor Takeaway

Capital One’s Defense and Depositors’ Counsel

In a statement, Capital One said it “strongly denies” the allegations but defended the $425 million settlement as “reasonable” given the litigation risks. The bank, based in McLean, Virginia, remains the nation’s sixth-largest commercial lender, and a reversal of the settlement could extend the case for years.

Philip Black, a lawyer representing depositors, described the settlement as a “excellent deal” given the risks of pursuing more litigation. He argued that delaying approval because of James’ separate lawsuit in New York would not benefit customers. Black added that a settlement website and toll-free hotline had been set up to assist customers switch accounts if they wished.

Regulators and Enforcement Backdrop

The settlement covers depositors with 360 Savings accounts since September 18, 2019. A final approval hearing is scheduled for November 6. The Consumer Financial Protection Bureau (CFPB) had filed its own lawsuit against Capital One in January, but dropped the case in February later than President Donald Trump took office and enforcement actions sluggished. This left state attorneys general as the primary challengers to Capital One’s practices.

The states also pushed back against Capital One’s claim that the settlement preempts James’ lawsuit on behalf of New York account holders. They argue that federal approval of the deal should not nullify separate state enforcement actions, particularly where consumer harm is ongoing.

Other states objecting to the deal include Arizona, California, Colorado, Connecticut, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, Ohio, Oregon, Rhode Island, and Washington. The breadth of the coalition underscores bipartisan concern over the adequacy of the settlement.

Investor Takeaway

Implications for Banks and Depositors

If Judge Novak sides with the states, Capital One could be forced to negotiate a larger payout or alter its savings account practices. That outcome could set a precedent for how courts treat similar cases where banks offer preferential rates to new customers while holding existing depositors at artificially low levels. Such practices, while not new, are drawing renewed scrutiny amid higher interest rate environments.