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The big banks are at it again.
Capital One marketed its “360 Savings” accounts as “high interest” accounts with “one of the nation’s best savings rates” that would earn its customers more than an average savings account, New York Attorney General Letitia James alleged in a lawsuit filed last week. Actually, while interest rates rose nationwide, Capital One kept the interest rates for its 360 Savings accounts artificially low.
The lawsuit charges that instead of providing savings to 360 Savings accounts, Capital One created “360 Performance Savings,” a nearly identical type of savings account that provided much higher interest rates than 360 Savings – at one point, more than 14 times higher.
James said Capital One intentionally misled its 360 Savings customers about the existence of its 360 Performance Savings product to avoid paying them millions of dollars in interest. With the lawsuit, she seeks to hold Capital One accountable and provide restitution to consumers who were cheated out of the interest they thought they were earning.
“New York families work hard to save money for their futures, and they deserve every dollar of interest they are promised,” James said in a statement. “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.”
A high-interest savings account is a bank account that pays depositors a higher interest rate than a traditional savings account. Capital One marketed 360 Savings as its “high interest” savings account with “a great everyday rate,” promising customers: “Your money will earn much more than what it would in an average savings or money market account…What’s the catch? There is none.”
As interest rates rose nationwide beginning in 2022, Capital One froze its 360 Savings rate at 0.3 percent and increased its 360 Performance Savings rate to as high as 4.35 percent, leaving 360 Savings customers with a below average interest rate, according to the lawsuit. Instead of encouraging 360 Savings customers to upgrade their existing accounts, Capital One worked to keep them in the dark about the availability of the new product.
Attorney General James alleges in the lawsuit that Capital One promoted its 360 Performance Savings accounts to existing customers, but it didn’t notify its 360 Savings customers of the chance to earn more interest. Capital One even instructed its employees not to tell 360 Savings customers about the new product unless they asked.
Capital One removed 360 Savings from its website and completely replaced it with 360 Performance Savings, concealing that 360 Savings and 360 Performance Savings existed as separate and distinct products with different interest rates. By doing so, Capital One created a secret, two-tier system of savings accounts in which only new accounts received the high interest rates that Capital One advertised.
With compound interest, small differences in rates add 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.
James said 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 Consumer Financial Protection Bureau sued Capital One in January over similar allegations, but dropped its lawsuit, and others, under the new Trump administration.
On Friday, Capital One agreed to pay $425 million as a result of lawsuits on the 360 Savings Accounts related to several separate lawsuits across the country. About $300 million will go to depositors to make up for the interest they would have earned in the higher-yield account. The lawsuit brought by the state of New York wasn’t part of the settlement.
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