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Capital One (COF) Wants Dismissal of Savings Account Holder Suit

Capital One Financial Corporation COF wants the lawsuit filed by savers to be dismissed. Savers claimed that COF used deceptive practices to make them think that they were earning the highest interest rate available from its online banking arm amid the increasing rate environment.

Earlier this month, a lawsuit was filed against COF by savers who claimed that the company 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, COF’s existing 360 Savings account customers, who were seeking juicier yields, were required to open a 360 Performance Savings account.

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”.

According to the claims, as of Sep 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.

The lawyers for the plaintiffs stated, “There were, and are, no material differences between these two accounts other than the interest rate. Capital One did not notify its 360 Savings account holders that the 360 Performance Savings account was available, that 360 Performance Savings was, in fact, a different account and not just another name for the 360 Savings account, or that 360 Performance Savings paid a higher rate of interest”.

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.

Thus, Capital One customers with 360 Performance Savings accounts were receiving 4.30%, while the 360 Savings account customers were being paid only 0.30% as of the last month.

The complainants claimed that the bank breached its contract with 360 Savings account customers. They said that even though COF had the discretion to establish the interest rate it paid, it did not engage in good faith and fair dealing.

However, now, COF wants a federal judge to dismiss the lawsuit. In a court filing, Capital One noted that the annual percentage yield on its 360 Savings account was disclosed to customers in monthly statements and pointed out to contractual language stating that it had the right to change interest rates at any time at its own discretion.

The company is arguing that plaintiffs are seeking the creation of a legal obligation that would require any bank that offers a new product to provide it to existing customers who are enrolled in a different product.

Capital One stated, “Plaintiffs' request is legally unsupported, could have far-reaching and untenable consequences if granted by this Court, and should be rejected outright”.

COF argues that the accusers are seeking to use state law in a way that would significantly interfere with the company’s ability to receive deposits, which is a federally granted power.

The bank has also noted that the plaintiffs did not point to any contractual provision that required it to notify 360 Savings customers about the creation of, or the existence of, the 360 Performance Savings account.

COF said, “Nor do they allege any facts showing that Capital One did anything to prevent them from learning about, or switching to, the Performance Savings account. On the contrary, they allege that Capital One advertised the Performance Savings account on its website …”

Over the past six months, shares of COF have gained 20.1% compared with the industry’s growth of 2.2%.

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

Misconduct by Other Companies

A few months ago, Goldman Sachs GS agreed to pay $6 million to the Securities and Exchange Commission (SEC) for not providing complete and accurate information in the blue sheets, which contain information regarding securities trading and transactions that are provided to various regulatory authorities.

Per SEC’s findings, GS made more than 22,000 inadequate blue sheet submissions between 2012 and 2022, comprising 43 different types of errors that affected more than 163 million transactions.

SEC stated that GS did not have adequate processes that could verify the accuracy of its electronic blue sheet submissions. Moreover, per SEC, Goldman knowingly violated the recordkeeping and reporting provisions of the federal securities laws.

Hence, GS agreed to pay the fine levied on it. Also, it has undertaken remedial actions to rectify and improve the reporting systems and controls of the blue sheet submissions.

Likewise, Washington Trust Bancorp, Inc.’s WASH wholly-owned subsidiary, The Washington Trust Company, agreed on a settlement with the U.S. Department of Justice to resolve allegations that Washington Trust violated fair lending laws in Rhode Island between 2016 and 2021.

Washington Trust was required to provide $7 million in mortgage loan subsidies for mortgage, home improvement or refinance loans in specific census tracts in Rhode Island over five years.

Also, the company had to commit $2 million for focused community outreach and marketing efforts.

The settlement did not include any civil monetary penalties.

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