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Wednesday, May 29, 2024 | Back issues
Courthouse News Service Courthouse News Service

Cardholders Lose Fight Over Capital One Fees

(CN) - Capital One Bank's customers may have felt manipulated and misinformed, but the financial institution did nothing wrong in 2009 when it unilaterally raised interest rates on consumer credit card accounts, a federal judge ruled.

The first of the lawsuits challenging Capital One's change in policy was filed in state court on Sept. 15, 2009, and was removed to federal court 15 days later. In that lawsuit, the aggrieved cardholders alleged multiple claims, including breach of contact, breach of implied contract, inconscionability, unjust enrichment, and violations of the Truth in Lending Act.

The suit was later consolidated with similar claims originating in California and Virginia.

As outlined in U.S. District Judge Thomas Thrash Jr.'s opinion, consumers who hold a Capital One credit Card typically applied for it in response to a direct mail, internet or other form of solicitation. These solicitations offer a wide variety of terms, including "fixed rate" and "variable rate" credit cards.

Each issued card is stamped with statement that says, "By accepting, signing or using this card, you agree to Capital One's present and future rules and regulations."

Within days of the credit card's issuance a copy of the customer agreement currently in effect is mailed the new card holder, Thrash wrote.

In late 2008, Capital One decided to increase the annual percentage rage applicable to the accounts of certain customers, including the plaintiffs, as part of a 2009 "repricing" program.

"The 2009 Change in Terms changed customers' purchase interest rates, cash interest rates, penalty interest rates, and credit limits," Thrash explained. "Over 30 million customers were 'repriced' during the 2009 Change in Terms which occurred in two phases. The first group of accounts was selected for repricing in February 2009, the second in May 2009."

Capital One contracted with a vendor to print and distribute the notices using address information provided by the customers. The notices were mailed in an envelope branded with the phrase, "Important information regarding your account."

Although the notice informed customers of the proposed changes and gave the opportunity to decline those changes, many plaintiffs did not realize the effect it would have on their account until receiving statements with the higher charges. Plaintiffs claim that the notices were indistinguishable from other "junk mail" regularly sent by Capital One.

Many of the plaintiffs believed that a "fixed" rate meant that Capital One would not change their APR as long as the account was in good standing. One customer thought that he could just stop using his card and would pay the balance using the old interest rates.

Another card user claims that he fell victim to the bank's "No Hassle" commercials and did not realize the increases would apply to his existing balance.

Along with the plaintiff that never got notice of the changes, one customer realized the change when his minimum monthly payment increased by $100. Two plaintiffs filed for bankruptcy after the change in rates.

Although plaintiffs argue that defendant violated promises, implemented enormous rate increases outside the market range and did not properly notify customers, Judge Thrash held the plaintiffs "are unable to show any contractual duty on the part of the Defendant to keep rates "low" and "fixed."

"The Defendant offered consumers a choice as to whether to keep the credit card or not," Thrash wrote. "For this reason, the Plaintiffs cannot argue that the Defendant increased its interest rates 'outside the market range.'

"If consumers did not want to pay interest rates that high, they could close their accounts. The Defendant complied with requirements under federal law in the substantive and procedural notice it gave to customers. ... While the Plaintiffs may have pointed out difficulties the Defendant had in implementing the 2009 Change in Terms, the Plaintiffs have not been able to link any of this evidence to their particular causes of action."

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