How a major bank cheated its customers out of $2 billion, according to a new federal lawsuit

(Photo by BRENDAN SMIALOWSKI/AFP via Getty Images)

An explosive new lawsuit filed by the Consumer Financial Protection Bureau (CFPB) alleges that Capital One bank cheated its customers out of $2 billion. According to the lawsuit, Capital One deceived and abused its depositors, baiting them with promises of high interest rates before switching the terms and paying little interest. The CFPB claims that Capital One purposefully hid the truth about these accounts from customers and concealed the availability of a new product that paid much higher interest.

In 2012, Capital One acquired ING Direct, an online bank known for its generous interest rates. The next year, ING Direct savings accounts were rebranded as 360 Savings. Former ING Direct account holders were assured that the rebranded account would still be "no-fee, no-minimum checking and savings accounts—with the great rates that we know are important to you."

For the next six years, 360 Savings accounts were marketed to the public as "high interest" online accounts. "Your money will earn much more than what it would in an average savings or money market account," Capital One's website promised from May 2013 to at least March 2016. "What’s the catch? There is none."

Emails and other marketing materials said 360 Savings accounts had a “top savings rate,” “one of the nation’s highest savings rates,” and “one of the nation’s best savings rates.” Capital One told customers that the 360 Savings rate could vary, but changes would be based on "[c]urrent market conditions” and “[o]ur competition.” The lawsuit argues that "[i]t was reasonable for consumers to interpret those representations to mean that the 360 Savings rate would increase when interest rates rose more generally."

As a result, the bank suggested that customers would not need to monitor the rate closely, describing it as a “[c]ompetitive rate you can bank on.” In 2017 and 2018, it assured customers, "[t]here’s nothing for you to do. Just sit back and enjoy the extra interest.” The bank also knew through its internal surveys that customers did not check their interest rates frequently, and half of the bank's customers did not know the interest rate on their savings accounts.

Until 2019, Capital One handled the 360 Savings accounts largely as promised. Then, things changed dramatically.

In September 2019, Capital One created a new type of savings account called "360 Performance Savings." The account was identical to the 360 Savings account in every way but one: 360 Performance Savings accounts paid much higher interest rates. At launch, 360 Performance Savings accounts paid a 1.9% annual interest rate. At the time, 360 Savings accounts paid 1%.

That spread would increase substantially over time. Starting in December 2020, Capital One froze the rate of the 360 Savings accounts at 0.3%. By January 2024, the 360 Performance Savings account paid 4.35% annual interest, and the 360 Savings account still paid 0.3%.

So why didn't every 360 Savings account holder convert to a 360 Performance Savings account? They were not told about the new accounts.

Capital One "promoted 360 Performance Savings to existing customers who did not have 360 Savings accounts, including its credit card customers, checking accountholders, and CD customers." At the same time, the bank "eliminated nearly all references to 360 Savings from its website and marketing," which may have led 360 Savings account holders to believe that 360 Savings and 360 Performance Savings were the same product. Most damningly, the lawsuit alleges that Capital One prohibited employees from telling 360 Savings customers about 360 Performance Savings "outside of very limited circumstances." The result was that Capital One could use high rates to attract new customers while existing customers received a pittance.

The CFPB lawsuit alleges that Capital One's scheme violated laws against abusive practices, deceptive acts, and misleading advertising. It seeks to recover Capital One's "unjust enrichment," impose civil penalties and enjoin the company from engaging in similar conduct.

“The CFPB is suing Capital One for cheating families out of billions of dollars on their savings accounts,” CFPB Director Rohit Chopra said in a statement. “Banks should not be baiting people with promises they can’t live up to.”

Capital One denied the CFPB's allegations and suggested the lawsuit was inappropriate so close to a change in administration. A Capital One spokesperson said the company was "deeply disappointed to see the CFPB continue its recent pattern of filing eleventh-hour lawsuits ahead of a change in administration" and pledged to "vigorously defend" itself in court.

Banks like Capital One will likely face less scrutiny from the CFPB during the next Trump administration. It is possible the CFPB will cease to exist at all.

Will the CFPB survive Trump?

Several prominent Republicans and incoming Trump administration members support eliminating the CFPB, or significantly cutting back its powers.

The CFPB, which was created in the wake of the 2008 financial crisis and has since won $19.6 billion in consumer relief, has long been criticized by Republican lawmakers as a regulatory overreach. During the Biden administration, lawmakers have targeted Chopra's attempts to crack down on abusive practices by banks and other financial companies.

Senator Tim Scott (R-SC), the ranking Republican on the Senate Committee on Banking, Housing, and Urban Affairs, said last month that Chopra has been pushing a “unilateral partisan agenda” at “breakneck speed.”

Both Elon Musk and Vivek Ramaswamy, who Trump has appointed to lead the Department of Government Efficiency (which is not a government department and can only make recommendations to Trump), have called for the CFPB to be eliminated.

“Delete CFPB,” Musk posted on X in November. “There are too many duplicative regulatory agencies.”

Ramaswamy has posted on X several times about the CFPB. The day after Musk’s post, he said, “consumers are no better off for its existence. Quite the contrary, actually.”

He also posted in December that the CFPB’s funding structure is “constitutionally dubious & anti-democratic.” The agency does have a unique arrangement, getting money directly from the Federal Reserve instead of through congressional appropriations, but the Supreme Court ruled in May 2024 that this structure is constitutional.

Representative French Hill (R-AR), chairman of the House Financial Services Committee, has been highly critical of the CFPB under Chopra and said that he would like to eliminate the agency, but acknowledged there might not be enough support.

Recent proposals to curtail the agency have included tying its funding to congressional appropriations to make the agency more beholden to lawmakers and limiting its investigative powers.