(Reuters) -A bipartisan group of 18 U.S. states told a federal judge that Capital One's $425 million settlement with depositors who felt cheated out of high interest rates should be rejected, because it lets the bank continue short-changing customers.

Led by New York Attorney General Letitia James, the states objected in a filing made public on Wednesday in federal court in Alexandria, Virginia, where U.S. District Judge David Novak granted preliminary settlement approval in June.

Capital One and a lawyer for the depositors had no immediate comment.

Capital One did not admit wrongdoing under the settlement.

The May 16 settlement addressed claims that Capital One froze rates at 0.3% on its "high interest" 360 Savings accounts, while quietly offering rates exceeding 4% to new customers on similarly named 360 Performance Savings accounts.

Capital One, based in McLean, Virginia, agreed to pay 360 Savings depositors $300 million to cover interest they missed out on, plus another $125 million in interest if the depositors still held their accounts.

STATES SAY SETTLEMENT WOULD SAVE BANK MORE THAN $2.5 BILLION

But the states told Novak that 360 Savings depositors would earn just 0.78% under the settlement, below the 3.5% that Capital One now offers 360 Performance Savings depositors.

The states said this would save the sixth-largest U.S. commercial bank more than $2.5 billion, while providing typical depositors just $54 of the $717 in interest lost.

They also complained that Capital One wouldn't have to change its behavior. They said Novak should reject Capital One's claim that the settlement preempted James' own lawsuit on behalf of 360 Savings depositors in her state.

The settlement covers depositors with 360 Savings accounts at any time since September 18, 2019. A hearing to consider final settlement approval is scheduled for November 6.

Other states objecting to the settlement include Arizona, California, Colorado, Connecticut, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, Ohio, Oregon, Rhode Island and Washington.

The U.S. Consumer Financial Protection Bureau filed a similar lawsuit against Capital One in January.

It dropped that case in February, after President Donald Trump took office and the White House largely ended the CFPB's enforcement activity.

The case is In re Capital One 360 Savings Account Interest Rate Litigation, U.S. District Court, Eastern District of Virginia, No. 24-md-03111.