CFPB dropping Capital One lawsuit alleging it cost customers $2B in lost interest

The Consumer Financial Protection Bureau has reportedly moved to drop a lawsuit against Capital One that accused the bank of misleading customers about savings account interest rates, allegedly costing them a collective $2 billion.

The case, filed in January during the last days of the Biden administration, is among several recent CFPB actions that have been rescinded under new leadership.

An NBC News report on Thursday cited a terse one-sentence court filing saying the CFPB sought to dismiss the case with prejudice, preventing it from being refiled in the future.

Capital One welcomed the agency’s decision, saying in a statement to NBC: “We welcome the CFPB’s decision to dismiss this action, which we strongly disputed.” The bank had previously denied the allegations brought forward by then-CFPB Director Rohit Chopra.

Allegations of misleading account holders

The lawsuit, initiated last month, accused Capital One of confusing customers by offering two similarly named savings accounts with different interest rates. The CFPB alleged that account holders were not adequately informed that one account provided significantly higher interest than the other.

“The CFPB is suing Capital One for cheating families out of billions of dollars on their savings accounts,” Chopra said in a statement announcing the lawsuit. “Banks should not be baiting people with promises they can’t live up to.”

Capital One maintained that it had been transparent in its offerings and had not engaged in deceptive practices.

CFPB leadership and direction shift

The dismissal of the case comes amid broader changes at the CFPB following the transition to the Trump administration. Over the past week, the agency has also dropped lawsuits against a student loan servicer accused of improperly collecting discharged debt and an online lender it had previously sued over misleading loan costs.

Meanwhile, Jonathan McKernan, Trump’s nominee to lead the CFPB, told a Senate committee Thursday that he believed the agency had overstepped its mandate in recent years. He suggested that, if the bureau remains in operation, it should be restructured to improve oversight and accountability.

The walkback of legal actions comes at a time of uncertainty for the CFPB, with some members of the administration advocating for its dissolution. Russell Vought, head of the Office of Management and Budget, recently directed CFPB staff to halt operations, while Elon Musk, who's overseeing the Department of Government Efficiency's efforts ostensibly aimed at cutting costs and rooting out fraud across the federal system, has expressed support for eliminating the agency altogether.

Potential impact on consumer protections

The CFPB was created under the 2010 Dodd-Frank Act in response to the financial crisis, granting it broad authority to oversee banks and financial services firms. The agency has played a role in regulating credit-card late fees and combating predatory lending practices.

In a statement Thursday afternoon, Chuck Bell, advocacy program director at Consumer Reports, warned of the potential ramifications of scaled-back CFPB enforcement for consumers.

"Dismissing its lawsuit against Capital One sends the message that the CFPB plans to look the other way when banks and other financial companies mistreat their customers," Bell said. "Consumers who have been treated unfairly by banks, paycheck advance companies, and other lenders stand to lose billions of dollars in potential relief if the CFPB abandons its pending cases.”

Adam Gana, managing partner at law firm Gana Weinstein, recently issued similar warnings with respect to a potential dismantling of the CFPB.

“For consumers, the absence of the CFPB would likely mean a significant reduction in oversight and accountability for financial institutions, leaving individuals more vulnerable to predatory practices, such as deceptive lending, hidden fees, and other forms of misconduct,” Gana told InvestmentNews earlier this month.

At the same time, he noted that financial firms could see reduced regulatory burdens if the agency’s authority is curtailed. However, he cautioned that “it could also lead to increased uncertainty and inconsistencies as oversight shifts to a patchwork of state regulators or other federal agencies.”