Federal watchdog reverses course, drops Capital One lawsuit

The Consumer Financial Protection Bureau reversed course Thursday and dropped a federal lawsuit against McLean-headquartered Capital One and its parent company, Capital One Financial, which alleged the companies cheated millions of consumers out of more than $2 billion in interest payments.

The U.S. government’s watchdog charged with protecting consumers from financial institutions filed a dismissal with prejudice, meaning the case cannot be brought back to court if accepted by the judge in the U.S. District Court for the Eastern District of Virginia.

“We welcome the CFPB’s decision to dismiss this action, which we strongly disputed,” a spokesperson for Capital One said in a statement Thursday.

The CFPB, launched in response to the 2008 financial crisis, did not immediately respond to a request for comment.

Thursday’s filing reflects the overnight changes in the federal government under President Donald Trump, who promised to slash federal spending and cut thousands of federal jobs, as well as shuttering some departments and agencies. The CFPB was one of the agencies forced to close in the first weeks of the second Trump presidency, leaving the lawsuit against Capital One and other recent enforcement measures in limbo.

Sending a message

Erin Witte, director of consumer protection for the Consumer Federation of America (CFA), a Washington, D.C., association of nonprofit consumer organizations, said it’s unusual for the CFPB to drop a case filed during a previous administration.

“It’s a really unprecedented move from the Trump administration,” she said.

Dropping the lawsuit, according to Witte, sends a message to leaders at banks, student loan providers and mortgage lenders that there will be no consequences for violating the law.

“I think it’s clear that the bureau is taking steps that are harming the consumers that they should be protecting,” she said. “The entire reason that we have a CFPB is because conduct like this was not being monitored, it wasn’t being addressed, and now the CFPB is turning its back on these people instead of protecting them.”

The lawsuit, which was filed Jan. 14 during the final days of the Biden administration, alleged that Capital One misled consumers about “high interest” accounts, claiming Capital One Financial illegally deceived consumers and that Capital One N.A. — a national bank and wholly owned subsidiary of Capital One Financial — violated the Truth in Savings Act by falsely representing the 360 Savings accounts as providing a variable interest rate that was “one of the nation’s” “top,” “best” and “highest” and that customers would earn much more interest than with the average savings account.

Almost immediately after Trump took office Jan. 20, CFPB’s director, Rohit Chopra, was fired. Office of Management and Budget Director Russell Vought, an architect of Project 2025, took over as the agency’s acting director. Over the weekend of Feb. 8, news broke that Vought had shuttered the agency’s headquarters and employees were told to cease work.

The National Treasury Employees Union filed two federal lawsuits Feb. 9 against Vought, alleging that “the administration has unlawfully trampled the power of Congress to create a federal agency that it deemed necessary to protecting American consumers” and that the CFPB violated the Privacy Act by disclosing employee records to the U.S. Department of Government Efficiency.

In a Feb. 24 response to one of those lawsuits, federal attorneys noted that Trump on Feb. 11 nominated Jonathan McKernan, a board member of the Federal Deposit Insurance Corporation, to be the agency’s director. That, the filing states, is “inconsistent” with the view that the administration plans to dismantle the agency.

In an opening statement for Thursday’s nomination hearing before the U.S. Senate Banking Committee, McKernan noted the CFPB suffers “from a crisis of legitimacy.”

“This must be corrected if the CFPB is to reliably do what it’s supposed to do — look out for the American consumer,” he stated. “To that noble end, the CFPB needs to be made accountable to our elected officials and its past excesses need to come to an aend.”

U.S. Sen. Elizabeth Warren, D-Massachusetts, implied Thursday that McKernan’s role might not be highly valued by the Trump administration. “It kind of feels like you’ve been lined up to be the No. 1 horse at the glue factory,” she said at the nomination hearing.

In June 2024, Chopra told the U.S. House Financial Services Committee that the agency had returned $20.7 billion to consumers through law enforcement activity since its 2011 creation.