Thursday, May 12, 2005

Capital One Bank sued by Minnesota AG

Capital One Bank
Attorney General Sues Capital One Over Advertising Practices State
Alleges Company Falsely Advertised "Low and Fixed" Rate Credit Cards

Minnesota Attorney General Mike Hatch filed a lawsuit today against
Capital One Bank and Capital One F.S.B. for using false, deceptive
and misleading television advertisements, direct-mail solicitations,
and customer service telephone scripts to market credit cards with
allegedly "low" and "fixed" interest rates that, unlike its
competitors' rates, will never increase. In fact, the lawsuit alleges
that Capital One increases the interest rate on such cards up to 400%
for consumers who trigger a "penalty" rate by defaulting in any
number of ways.

"Capital One aggressively markets its brand image as the credit card
company with the nation's lowest fixed rates," Attorney General Hatch
said. "But that image is false. If you do something as simple as pay
a day late, your rate with Capital One can sky-rocket overnight."

The State's suit alleges that Capital One uses "penalty rate" pricing
to offer a supposedly "fixed" interest rate to consumers, but then
increases that rate when an individual account holder defaults.
Capital One also retains the right to unilaterally increase an
account holder's interest rate--for any reason or no reason at all--
based upon a "change in terms" provision in its credit card agreement.

Specifically, the lawsuit faults Capital One's marketing practice as
follows:

• Television Ads : Capital One runs television ads with the same
basic format, script, graphics and visual punch line designed to
create the false and deceptive impression among consumers that its
competitors' rates will increase, but Capital One's rates will not.
In Capital One's "No-Hassle" ads, for instance, two people compete to
pay for lunch, one with a competitors' card, the other with a Capital
One card which has a "low and fixed" rate. When the man with a
competitor's card asks what's going to happen to his rate, he is
physically shot upward by a catapult operated by barbarians or a
breaching whale. Capital One then orally and visually tells consumers
that it offers the nation's lowest fixed rate at 4.99%.

• Written Solicitations . Capital One bolsters its false television
ads with deceptive direct mail solicitations. In one solicitation,
for instance, Capital One describes its 4.99% interest rate as "low"
thirteen times and as "fixed" seventeen times, including on both
sides of the envelope, in the body of the text, in the application
itself and elsewhere, including boxes comparing the interest rates
and "savings" of Capital One's credit cards with consumers' other
loans.

• Customer Service Scripts. When consumers contact Capital One to
apply for the card, Capital One scripts its customer service
representatives to evade a direct response to the question "What does
fixed mean?" Capital One answers: "Unlike most credit card companies,
Capital One's fixed rate is not variable and will not go up and down
as interest rates change." Only if a consumer "probes" another two
times does Capital One concede that it cannot guarantee that its
rates will stay the same forever.

Filed in Ramsey Country District Court, the State's lawsuit alleges
that Capital One's marketing practices violate Minnesota's laws
prohibiting false advertising, consumer fraud, and deceptive trade
practices. The suit seeks injunctive relief prohibiting Capital One's
false, deceptive and misleading conduct and civil penalties.

The defendants are Capital One Bank and Capital One F.S.B. Both are
Virginia-based entities that offer credit card products to prime and
subprime consumers. Capital One is one of the top ten largest credit
card issuers in the United States. According to Capital One Financial
Corporation's most recent Form 10-Q filing with the U.S. Securities
and Exchange Commission, Capital One's domestic credit card loans
totaled $46.1 billion as of September 30, 2004. These loans generated
net income of $414.4 million for July, August and September, 2004, a
50% increase from the same period in 2003. Capital One's marketing
expenses were $826.6 million from January through September, 2004.
Capital One's solicitations claim that the company has 46 million
customers.

Consumers who believe they were victimized by Capital One's practices
may contact the Citizen Assistance Line of the Minnesota Attorney
General's Office at 651-296-3353 or 1-800-657-3787. Or you may fill
out our complaint form.


Office of Minnesota Attorney General Mike Hatch
1400 NCL Tower
445 Minnesota Street
St. Paul, MN 55101
(651) 296-3353
1-800-657-3787
TTY: (651) 297-7206
TTY: 1-800-366-4812