A federal judge has rejected Capital One Financial Corp’s proposed $425 million settlement with its depositors, finding that the deal failed to provide adequate compensation to millions of customers allegedly shortchanged on interest payments.
The case, In re: Capital One 360 Savings Account Interest Rate Litigation, centers on claims that the banking giant misled customers who held its “360 Savings” accounts by keeping them locked into interest rates of approximately 0.3%, even as it offered new customers “360 Performance Savings” accounts with rates more than ten times higher.
U.S. District Judge David J. Novak of the Eastern District of Virginia ruled that the settlement was “insufficient and unreasonable,” emphasizing that it would only deliver a small fraction of the total financial harm suffered by depositors. According to his order, the proposed compensation represented less than 10% of the damages estimated by the plaintiffs and would still leave many depositors earning dramatically less than newer customers.
The Dispute: Alleged Interest Rate Discrimination
The controversy traces back to Capital One’s decision in 2019 to introduce its 360 Performance Savings accounts, offering significantly higher yields while maintaining older 360 Savings accounts at substantially lower rates. Customers accused the bank of unfairly penalizing loyal account holders by failing to increase their rates to match market levels and by not adequately disclosing that better-earning accounts were available.
The plaintiffs allege that the disparity between the two account types violated consumer protection and contract laws, asserting that Capital One misrepresented its savings products and unjustly enriched itself at the expense of long-term depositors.
The Rejected Deal
Under the proposed settlement, Capital One had agreed to pay $300 million in restitution for unpaid interest and an additional $125 million to current 360 Savings account holders as a goodwill payment. The bank did not admit any wrongdoing but said the offer reflected its commitment to resolving the matter “fairly and efficiently.”
However, several U.S. states—including New York and California—objected to the terms, arguing that the deal undervalued the harm done. According to state attorneys general, the proposed relief would effectively compensate account holders as if they had earned a 0.78% average interest rate, compared to the 3.4% rate paid on 360 Performance Savings accounts over the same period.
Critics argued that this discrepancy allowed Capital One to pocket approximately $2.5 billion in savings at the expense of consumers.
Judge Novak’s Decision
Judge Novak sided with those concerns, noting that the deal failed to make depositors whole and did not adequately address ongoing inequities. In his order, he emphasized that millions of class members remained in accounts earning far less than comparable products, meaning the harm was not only historic but continuing.
Novak sent the parties back to negotiations, directing them to propose a revised settlement that more fully compensates affected customers and ensures parity in treatment among account holders.
Regulatory and Legal Background
The Consumer Financial Protection Bureau (CFPB) had previously examined Capital One’s savings account practices but later dropped its related enforcement action. Nevertheless, the private class action persisted, supported by both individual plaintiffs and several state regulators concerned about consumer fairness and financial transparency.
The rejection represents a significant setback for Capital One, which had sought to put the litigation behind it amid rising scrutiny of banks’ deposit interest policies. With interest rates climbing sharply in recent years, several major financial institutions have been accused of failing to pass on higher returns to their existing savings customers, prompting broader calls for regulatory reform.
Implications for Banks and Consumers
Legal analysts suggest the ruling could have sweeping implications for how banks structure their savings products and communicate rate changes to customers.
If Capital One is forced to increase compensation or revise its interest rate policies, it could set a precedent affecting other banks that offer tiered or legacy account systems.
For depositors, the ruling serves as a reminder to regularly review account terms and to ensure their funds are earning competitive rates. Consumer advocates warn that many customers remain unaware that banks often launch new high-yield products without automatically upgrading existing accounts.
The Road Ahead
Judge Novak’s order effectively resets the case, requiring Capital One and plaintiffs’ attorneys to renegotiate a more robust settlement. If they fail to reach an agreement, the matter could proceed to trial—a scenario that may expose the bank to significantly higher damages and reputational risk.
As the banking industry awaits the next development, this ruling underscores a growing judicial and regulatory expectation that financial institutions must treat long-term customers equitably, especially in an era where interest rates—and consumer awareness—are rising.
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