Capital One’s $425 Million Settlement Rejected by Judge

A federal judge has rejected Capital One’s $425 million settlement with depositors.

Those depositors had sued the financial services giant saying they were cheated out of high interest rates, but the judge handling the class action case found that the payout the company had in mind was too small, Reuters reported Friday (Nov. 7).

The settlement had aimed to resolve claims that Capital One kept rates at 0.3% on its “high interest” 360 Savings accounts, while offering higher rates to new customers on similarly named 360 Performance Savings accounts.

Capital One had agreed earlier this year to pay $300 million of unpaid interest to 360 Savings depositors, along with $125 million of interest to customers still holding their accounts.

However, U.S. District Judge David Novak found that the strength of the plaintiffs’ claims justified “significantly greater relief.” He said the deal seemed to give 360 Savings depositors less than 10% of their damages, and left them with the low-yielding accounts while 360 Performance Savings customers earned four to eight times more.

“These millions of class members would continue to experience the same financial harm that they have already experienced for years,” Novak wrote.

According to Reuters, the judge ordered both sides to go back to the negotiating table to  address his concerns. PYMNTS has contacted Capital One for comment but has not yet gotten a reply.

Capital One is also facing a lawsuit over the same issue in New York state, where Attorney General Letitia James has alleged that the company misled customers about the existence of its higher interest savings account.

Capital One has said that it “strongly” disagrees with the attorney general’s claims and will “vigorously defend” itself in court.

“Our flagship 360 Performance Savings product was marketed widely, including on national television, and has always been available in just minutes to all new and existing customers without any of the usual industry restrictions,” the company told PYMNTS in May.

The legal battle comes at a time when savings has “become both a goal and a defense mechanism” for younger Americans, as PYMNTS wrote last month. Research from PYMNTS Intelligence finds that members of Generation Z are saving at higher rates than their older counterparts, even if the total amounts are smaller.

Roughly 80% of Gen Z consumers say they keep some money in savings accounts or cash reserves, compared to 73% of millennials and a little more than 60% of Gen X consumers.

“Yet, the buffer they’re able to build is thin,” PYMNTS wrote. “Most keep less than three months’ worth of expenses on hand, reflecting the precarious balance between ambition and affordability.”

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