The class action lawsuit was brought by credit card holders of Capital One Bank (USA), N.A. (“Cap One”) seeking redress for the damages caused by Cap One’s breach of its standard form cardholder agreements, and its deceptive representations and omissions surrounding its “0%” balance transfer offers.
As alleged, prior to the point in time when a Cap One cardholder accepts a Cap One balance transfer offer (which are further described below), the cardholder receives a monthly account statement from Cap One which, among other things, identifies a cardholder’s “New Balance.” The New Balance is comprised of several components, including any purchases made during that month (“new purchases”), any outstanding balance left from the previous month, and any interest charges or other fees.
Under the terms of Cap One’s standard form customer agreement, Cap One cardholders have 25 days after the close of each billing cycle in which to pay their New Balance without incurring interest on new purchases made during that billing cycle. This 25-day period is referred to as the “Grace Period” in Cap One’s standard cardholder agreements. If the cardholder pays the New Balance in full within the Grace Period, the contract specifies that the cardholder will not be assessed interest, and no interest charges will appear on the cardholder’s next monthly statement. For cardholders who regularly pay their monthly statements in full, the amount of their purchases during that month (“new purchases”) and their New Balances will be the same. Such cardholders will never incur a monthly interest charge as long as they continue to pay their New Balance each month.
Conversely, the cardholder agreement provides that cardholders who pay less than their New Balance within the Grace Period will be charged interest. Such interest charges will show up on the cardholder’s next monthly statement.
Cap One monthly statements contain a chart listing various segments of the total balance owed on the cardholder’s account. One segment in this chart shows the “purchase balance subject to interest rate” (“purchase balance”). The “purchase balance” is the cumulative total of new purchases that were not paid in full when due, plus interest and fees, and less payments. Cardholders who regularly pay their accounts in full and on time will have a zero purchase balance, and accordingly, will not be assessed interest. Cardholders who do not pay their accounts in full will be charged interest on the entire amount of their purchase balance.
Numerous times every year, Cap One solicits its cardholder base to take 0% balance transfers. Cap One markets the balance transfers as a “chance to save” – a means for the cardholder to pay offhigher interest loans owed to other creditors. Cap One promises that these balance transfers will carry 0% interest for six or twelve months. To accept a balance transfer offer, all a cardholder has to do is use one of the “convenience checks” which corne attached to the offer. Cap One promises that it will segregate the transferred balance from other segments of the cardholder’s account. The balance transfer comes at a cost: Cap One charges the cardholder a fee of2%-3% of the total balance transferred.
Unbeknownst to Plaintiff and Classes, however, once a cardholder accepts Cap One’s “0% interest” balance transfer offer, Cap One unilaterally, and in breach of the cardholder agreement, eliminates the Grace Period and begins charging interest on all new purchases from the date of the balance transfer forward.
Cap One did not disclose that it would eliminate the Grace Period for cardholders who accepted Cap One’s 0% balance transfer offers and subject them to high interest charges. Cap One did not disclose that the only way for these cardholders to avoid interest charges on new purchases once they accepted a 0% balance transfer offer was to pay the full amount of these purchases plus the full amount of the balance transfer – in the same month that the cardholder accepted the balance transfer, even though the promotional period on the 0% offer was for 6 or 12 months. Cap One did not disclose that, by accepting the 0% offer, customers would be put to the choice of either paying interest on their new purchases, thereby losing the benefit of the Grace Period; or, immediately repaying the transferred balance in full, thereby losing the benefit of the balance transfer (for which the cardholder paid a 2%-3% fee). Contrary to the simple “chance to save” that Cap One represented the balance transfer would provide, and that cardholders paid for, many cardholders who accepted these offers found themselves worse off than they were beforehand.
This unilateral elimination of the Grace Period upon accepting Cap One’s 0% promotional balance transfer offer violates the cardholder agreement. Further, by unilaterally changing the terms regarding repayment of outstanding balances, Cap One violated the federalCredit Card Accountability, Responsibility and Disclosure Act (“CARD Act”).
This was not the only way in which Cap One violated the CARD Act through its balance transfer offers. Under the CARD Act, credit card companies are required to apply any amount over the cardholder’s minimum payment to card balances subject to higher interest rates, before they apply any portion of the payment to lower interest balances. Here, however, Cap One allocated amounts above a cardholder’s minimum payment to the 0% transferred balance segment, instead of to segments carrying a higher interest rate. This practice violated the CARD Act.
As a result of Cap One’s breach of the cardholder agreement, Plaintiff and the Classes were subjected to unnecessary interest charges and paid fees to Cap One to transfer balances for a benefit they did not receive.
Class: All Cap One cardholders with addresses in the United States who paid a fee for a 0% balance transfer pursuant to a Cap One balance transfer promotion, who were later charged interest on new purchases during the promotional period, despite paying their new purchases or purchase balances in full.