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Bank accused of short-changing customers out of interest

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Judge says depositors deserve significantly more relief

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Capital One not available for comment

By Jonathan Stempel

Nov 7 (Reuters) - A federal judge rejected Capital One's

$425 million settlement with depositors who said they

were cheated out of high interest rates, saying the payout was

too small and millions of account holders would continue to be

short-changed.

The class action settlement was intended to resolve claims

that Capital One froze rates at 0.3% on its "high interest" 360

Savings accounts, while quietly offering rates above 4% to new

customers on similarly named 360 Performance Savings accounts.

Capital One, based in McLean, Virginia, agreed to pay $300

million of unpaid interest to 360 Savings depositors, plus $125

million of interest if they still held their accounts.

But in a decision on Thursday, U.S. District Judge David

Novak in Alexandria, Virginia said the strength of the

plaintiffs' claims justified "significantly greater relief."

JUDGE SAYS HARMS WOULD CONTINUE

The judge said the accord appeared to provide 360 Savings

depositors less than 10% of their damages, and leave them stuck

in the low-yielding accounts while 360 Performance Savings

depositors 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.

The judge ordered both sides to resume settlement

negotiations in order to address his concerns.

Capital One did not immediately respond on Friday to

requests for comment. Philip Black, a lawyer for the plaintiffs,

declined to comment.

NEW YORK, 17 OTHER STATES OPPOSED SETTLEMENT

Eighteen states including New York, which is suing Capital

One over the same issue, opposed the settlement.

They estimated that 360 Savings depositors would earn an

effective 0.78%, compared with 3.4% that 360 Performance Savings

depositors now earn, saving Capital One more than $2.5 billion.

A spokesman for New York Attorney General Letitia James had

no immediate comment.

The U.S. Consumer Financial Protection Bureau also sued

Capital One over the 360 Savings accounts, but dropped the case

as the agency largely ended its enforcement activities.

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.