Capital One’s proposed $425 million class-action settlement with depositors is facing strong opposition from a coalition of 18 U.S. states, led by New York Attorney General Letitia James, who argue the deal is inadequate and unjust. The states filed a brief urging U.S. District Judge David Novak to reject the agreement, calling it “deeply flawed” and detrimental to consumers who were denied fair interest rates.
Background of the Dispute
The lawsuit stems from Capital One’s practice of holding interest rates for its long-term customers at just 0.3% on the 360 Savings account, even as the bank aggressively marketed its 360 Performance Savings accounts with rates above 4% to attract new customers.
Plaintiffs alleged that this practice violated consumer protection laws by misleading depositors into believing they were earning competitive rates on their savings. The bank, which has denied any wrongdoing, reached a settlement earlier this year to resolve the litigation and avoid the risks and expenses of a trial.
Under the proposed deal, $300 million would go toward compensating affected account holders for lost interest, while an additional $125 million would be distributed to those who still have accounts open with Capital One.
Why States Say the Deal Falls Short
Despite the large headline figure, state officials argue that the settlement fails to make customers whole. In their filing, they estimate that Capital One profited by more than $2.5 billion through artificially suppressed interest rates.
According to the states’ analysis, the average customer would receive roughly $54 under the settlement—less than 10% of their estimated losses. “This deal lets Capital One keep the vast majority of ill-gotten gains,” said James in a public statement, adding that the bank would be effectively rewarded for shortchanging depositors.
The coalition also warned that the agreement could bar future lawsuits at the state level, including New York’s pending litigation against Capital One over the same issue. They argue this would undermine state enforcement authority and set a precedent for corporations to sidestep accountability through broad class-action settlements.
Capital One and Plaintiffs’ Counsel Defend the Settlement
Capital One continues to maintain that it acted within the law, stating that the bank has always disclosed its interest rate structure. A spokesperson emphasized that the agreement represents a “fair and reasonable compromise” given the inherent risks of continued litigation.
Attorneys representing the class of depositors support the deal, noting that class-action settlements are inherently compromises and that customers would receive real monetary relief without waiting years for a trial and potential appeals. They also argue that litigation costs and the uncertainty of proving liability could have left customers with nothing if the case failed in court.
The Larger Debate: Consumer Protection and Banking Practices
This case is part of a broader national conversation about how banks treat depositors in a rising interest rate environment. Since 2022, many banks have been criticized for failing to pass on rate increases from the Federal Reserve to their existing customers, instead reserving higher-yield products for new customers.
Consumer advocates argue that this practice is misleading and exploits customer inertia, while banks defend it as standard industry practice. With the Consumer Financial Protection Bureau’s enforcement powers scaled back in recent years, state attorneys general have taken a more aggressive role in policing such behavior.
What Happens Next
Judge Novak will hold a final approval hearing on November 6, 2025, where he will consider arguments from both sides as well as objections from state attorneys general and individual depositors. If the judge rejects the settlement, Capital One and plaintiffs’ counsel may renegotiate a new deal or proceed toward trial.
Observers say this case could have wide-ranging implications for how banks structure savings account interest rates and how courts evaluate the fairness of class-action settlements that include broad releases of future claims.
Broader Implications for Depositors
For millions of consumers, the outcome of this case could mean the difference between modest reimbursement and full recovery of lost interest. It also serves as a reminder for depositors to monitor their interest rates and regularly compare them with available market offerings.
With interest rates expected to remain relatively high through 2025, financial experts advise customers to be proactive in moving funds to competitive accounts rather than assuming their bank will automatically match market trends.
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