New York AG Sues Capital One After Federal Case Dropped

Since taking office, the Trump administration has taken a number of actions to reduce investigations of white collar crime including directing the Justice Department to stop prosecutions under the Foreign Corrupt Practices Act which outlaws bribery and corruption in foreign countries, disbanding the Justice Department’s Cryptocurrency Enforcement Unit and reducing the size and support of the Justice Department’s Public Integrity Section which prosecutes public officials accused of corruption and the IRS’ Criminal Investigation Unit. In addition, a number of white collar crime prosecutions begun under the previous administration have been dropped including an action by the Consumer Financial Protection Bureau against Capital One.

The CFPB complaint had alleged that Capital One promoted its “360 Savings” account as offering one of the highest interest rates in the country while the bank offered a “360 Performance Savings” account that paid out rates as much as 14 times higher.

According to the complaint, Capital One “worked to keep 360 Savings accountholders in the dark about 360 Performance Savings’ existence as a distinct savings product with a higher rate. The Bank gave the two products similar names and marketed 360 Performance savings as it had 360 Savings; it eliminated references to 360 Savings on its website and replaced them with references to 360 Performance savings without disclosing that 360 Savings continued to exist as a distinct product., thus implying the products were the same; it did not specifically notify 360 Savings accountholders about the new product and excluded 360 Savings accountholders from a marketing campaign that advertised 360 Performance Savings to Capital One’s other customers and it explicitly forbade its employees from proactively telling 360 Savings accountholders about 360 Performance Savings.”

Thus, according to the CFPB’s complaint 360 Savings accountholders either were not aware of 360 Performance Savings as a separate savings account option or were misled into believing their 360 Savings accounts were 360 Performance Savings accounts with the higher rate. According to the CFPB, the actions of Capital One allowed it to market the 360 Performance Savings account to new customers while avoiding paying more than $2 billion in interest to its existing 360 Savings account holders.

After the CFPB lawsuit against Capital One was dropped, NY Attorney General Letitia James picked up the gauntlet and sued Capital one on state and federal law violations that allege the same wrongdoing. According to Attorney General James, “New York families work hard to save money for their futures, and they deserve every dollar of interest they are promised. Capital One assured high returns with no catches, then pulled the rug out from under their customers and hoped nobody would notice. Big banks are not allowed to cheat their customers with false advertising and misleading promises”

She emphasized that “with compound interest, even a small difference in rates adds up over time to create large differences in savings, meaning customers who stayed in 360 Savings accounts lost out on significant interest payments. A customer who put $10,000 in a 360 Savings account in September 2019 would have earned $186 of interest after five years. If the same customer had switched to a 360 Performance Savings account, they would have earned $1,090 of interest over the same period. Collectively, New York customers lost out on millions of dollars of interest compared to what they would have received with 360 Performance Savings accounts, while Capital One pocketed the difference.”

The action of Attorney General James appears to be just the latest example of a trend of state Attorneys General picking up cases where formerly the Justice Department and other federal agencies would take the lead. California Attorney General Rob Bonta is investigating and prosecuting ESG (Environmental, Social, and Governance) disclosures particularly as they related to “greenwashing” which is the practice of companies misleading investors about the environmental or social impact of their products or operations while the California, Michigan, Minnesota and NY Attorneys General are picking up the slack in enforcement actions regarding cryptocurrency crimes.