COF Faces State Opposition to $425M Saver Settlement in Court

A bipartisan group of 18 U.S. states has proposed the rejection of Capital One’s COF $425 million settlement deal with depositors who accused the bank of using deceptive practices to make them think that they were earning the highest interest rate available from the company's online banking arm during the rising rate cycle.

In May 2025, Capital One agreed to pay $300 million to depositors to compensate the interest they missed out on, with an additional $125 million in interest to existing accountholders, while denying any wrongdoing.

Details of the COF Lawsuit

The lawsuit was filed in 2023, with plaintiffs claiming that COF misleadingly and fraudulently created a new high-yield account rather than increasing the rates on its 360 Savings account. In the high-interest-rate environment, Capital One’s existing 360 Savings account customers, who were seeking juicier yields, were required to open a 360 Performance Savings account.

According to the claims, as of Sept. 16, 2019, the 360 Savings account holders were receiving 1% from Capital One. However, in the same month, the bank dropped references to 360 Savings from its website and began advertising a new account called 360 Performance Savings, which was paying 1.90% at that time.

Per the lawsuit, “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.”

Once the Federal Reserve began raising rates, the difference between the 360 Savings account rate and the rate paid to 360 Performance Savings customers increased rapidly. While 360 Performance Savings accounts received 4.30%, 360 Savings account customers were paid only 0.30%.

Rationale Behind the Opposition to the COF Settlement

The contention was led by Letitia James, New York Attorney General, who argued that the settlement would just allow the bank to continue its deceptive practices.
 
Other states objecting to the settlement include Arizona, California, Colorado, Connecticut, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, Ohio, Oregon, Rhode Island and Washington.

The states argued that 360 Savings depositors would earn just 0.78%, which is below the 3.5% that Capital One now offers 360 Performance Savings depositors, allowing the bank to save more than $2.5 billion without changing its practices. This would equate to depositors receiving only $54 of $717 they lost in interest.
 
The settlement includes depositors with 360 Savings accounts at any time since Sept. 18, 2019. A hearing is scheduled for Nov. 6 to consider final settlement approval.
 
Earlier this week, Reuters reported that COF has settled a lawsuit by social media creators who claimed that the bank’s free browser extension deprived them of commissions on sales generated through their content. Also, the bank sued the Federal Deposit Insurance Corp. over a $474.1 million special assessment to refill the Deposit Insurance Fund after the 2023 collapse of Silicon Valley Bank and Signature Bank.

Capital One’s Price Performance & Zacks Rank

In the past six months, COF shares have risen 24.8% compared with the industry’s growth of 48.3%.

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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