Capital One Files Lawsuit Against FDIC Over Erroneous Charges

Last week, Capital One COF sued the Federal Deposit Insurance Corp. (FDIC) for levying an “outsized and improperly calculated” special assessment fee of $474.1 million to refill its Deposit Insurance Fund (DIF) following the collapse of Silicon Valley Bank and Signature Bank in early 2023.  The case was filed in the federal court in Alexandria, VA.

Details of the COF Matter

Silicon Valley Bank and Signature Bank failed in 2023 and were taken over by the FDIC. A major chunk of their deposits exceeded the FDIC’s $250,000 insurance limit, leaving them uninsured. As a result, the regulator used funds from DIF to compensate uninsured depositors. Later, to replenish the used DIF, it implemented a special assessment on the nation’s largest banks.

COF argues that regulators mistakenly treated a $56 billion intercompany position between its two subsidiaries as uninsured deposits, significantly inflating the fee it was required to pay. The company stated that, using its revised December 2022 call report, its liability should have been approximately $325 million.
 
The lender further added that over the past two years, it has repeatedly informed the FDIC that the disputed intercompany position was wrongly treated as a deposit in the special assessment, making the invoice inaccurate. Nevertheless, the regulator has continued to demand payment based on what Capital One argues is an erroneous calculation.

Despite Capital One’s efforts to settle the matter, the FDIC advised the bank to either pursue an administrative appeal or take the issue to court. The bank has asked the court to declare that the intercompany position does not qualify as a deposit and that the FDIC’s special assessment was miscalculated. Capital One argues that, as a result, it does not owe the additional $149 million plus penalties sought by the regulator.

The lawsuit adds to the company’s growing legal troubles. Last month, the New York Attorney General, Letitia James, filed a lawsuit against the Capital One-owned Zelle app, alleging that the payment platform failed to implement crucial safety measures, allowing fraudsters to steal over $1 billion from consumers. In June, social media creators sued the bank, alleging that the bank’s free browser extension deprived them of commissions on sales generated through their content.

Capital One’s Price Performance & Zacks Rank

In the past six months, COF shares have risen 35.4% compared with the industry’s growth of 58.4%.

Currently, Capital One carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Regulatory Probes Faced by Other Banks

Last month, Deutsche Bank AG DB was fined HK$23.8 million ($3.05 million) by Hong Kong’s Securities and Futures Commission (SFC) for multiple regulatory breaches, including fee overcharging, misclassification of product risk and failure to disclose investment banking relationships in research reports.

The disciplinary action stems from investigations triggered by Deutsche Bank’s self-reports submitted between December 2020 and December 2023. The SFC found that between November 2015 and November 2023, the bank overcharged clients approximately $39 million in management and custodian fees. These overcharges resulted from failure to apply discounted fee rates and misstatements in fund valuations.

Similarly, JPMorgan JPM agreed to pay $330 million to settle ongoing and potential claims associated with the 1MDB sovereign wealth fund.

The settlement was announced as Swiss regulators, in a separate action, found JPMorgan guilty and imposed a fine for its failure to prevent money laundering in transactions associated with 1Malaysia Development Berhad.

The $330 million payout will contribute to Malaysia’s Assets Recovery Trust Account and comes “without admission of liability” from the bank. As part of the settlement, JPMorgan and Malaysia will withdraw all pending appeals connected with the lawsuit.

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This article originally published on Zacks Investment Research (zacks.com).

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