January 22, 2010
West Virginia Attorney General Darrell McGraw has sued McLean-based Capital One Bank and four other companies for unfair, deceptive and “unconscionable conduct in connection with their credit card lending and collection practices,” McGraw’s office announced.
Capital One spokeswoman Julie Rakes said the company does not comment on pending litigation.
The complaint alleges that Capital One Bank, a subsidiary of Capital One Financial Corp. (NYSE: COF), lured consumers into debt repayment plans by sending them solicitations disguised as offers of new credit. The offer was sent to consumers who had charged-off accounts with Capital One or other creditors, meaning the bank had already written off the accounts as uncollectible. Under the terms of the offer, Capital One agreed to provide the consumer $1 of new credit in exchange for the consumer’s agreeing to transfer the entire account balance of a charged-off account to the new credit card account, according to McGraw’s announcement.
The consumer was required to make payments on the old debt in order to receive further increases in the credit limit on their new credit card. By transferring the old debt onto a new credit card, Capital One was able to charge interest, late fees and over-the-limit fees on debt that otherwise would not have been subject to those fees. It also allowed Capital One to re- age the debts so that the applicable statute of limitations period started new, according to McGraw’s announcement.
The complaint also alleges that Capital One issued multiple low-limit credit cards, each charging exorbitant fees, rather than raising credit limits on consumers’ existing accounts. Also that Capital One “unconscionably” imposed over-the-limit fees on consumers’ accounts, sold services to consumers who could not benefit from the services and billed and attempted to collect for credit card accounts that were never activated.
“Capital One’s practice of offering nominal extension of credit, if and only if the consumer agreed to pay off a debt too old to be sued on is tantamount to loan sharking,” McGraw said in a statement.
Until recently, the attorney general was under a federal court injunction that prohibited him from suing the bank for its credit card practices. But on Jan. 4, a federal judge modified the injunction, allowing McGraw to sue the bank to enforce non-preempted substantive state laws, according to the announcement.
Capital One’s stock dropped 10.4 percent as of midmorning Friday to $38.31. Its 52-week range is $7.80 to $43.60.
Also, Bloomberg reported Friday that Capital One was downgraded by trading firms including FBR Capital Markets, which cut earnings estimates for 2010 and 2011.
West Virginia Attorney General Darrell McGraw has sued McLean-based Capital One Bank and four other companies for unfair, deceptive and “unconscionable conduct in connection with their credit card lending and collection practices,” McGraw’s office announced.
Capital One spokeswoman Julie Rakes said the company does not comment on pending litigation.
The complaint alleges that Capital One Bank, a subsidiary of Capital One Financial Corp. (NYSE: COF), lured consumers into debt repayment plans by sending them solicitations disguised as offers of new credit. The offer was sent to consumers who had charged-off accounts with Capital One or other creditors, meaning the bank had already written off the accounts as uncollectible. Under the terms of the offer, Capital One agreed to provide the consumer $1 of new credit in exchange for the consumer’s agreeing to transfer the entire account balance of a charged-off account to the new credit card account, according to McGraw’s announcement.
The consumer was required to make payments on the old debt in order to receive further increases in the credit limit on their new credit card. By transferring the old debt onto a new credit card, Capital One was able to charge interest, late fees and over-the-limit fees on debt that otherwise would not have been subject to those fees. It also allowed Capital One to re- age the debts so that the applicable statute of limitations period started new, according to McGraw’s announcement.
The complaint also alleges that Capital One issued multiple low-limit credit cards, each charging exorbitant fees, rather than raising credit limits on consumers’ existing accounts. Also that Capital One “unconscionably” imposed over-the-limit fees on consumers’ accounts, sold services to consumers who could not benefit from the services and billed and attempted to collect for credit card accounts that were never activated.
“Capital One’s practice of offering nominal extension of credit, if and only if the consumer agreed to pay off a debt too old to be sued on is tantamount to loan sharking,” McGraw said in a statement.
Until recently, the attorney general was under a federal court injunction that prohibited him from suing the bank for its credit card practices. But on Jan. 4, a federal judge modified the injunction, allowing McGraw to sue the bank to enforce non-preempted substantive state laws, according to the announcement.
Capital One’s stock dropped 10.4 percent as of midmorning Friday to $38.31. Its 52-week range is $7.80 to $43.60.
Also, Bloomberg reported Friday that Capital One was downgraded by trading firms including FBR Capital Markets, which cut earnings estimates for 2010 and 2011.
Woo-hoo!
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