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In a dramatic twist to a closely watched banking case, a Virginia federal judge has rejected Capital One’s proposed $425 million settlement, declaring that the deal shortchanges millions of customers who accuse the bank of deceptively marketing its 360 Savings accounts.

U.S. District Judge David J. Novak on Thursday refused to approve the agreement, saying that while the settlement was procedurally sound, it fell “neither reasonable nor adequate on substance.”

Less Than 10% Recovery for Customers, Court Finds

Judge Novak sharply criticized the proposed deal, noting that, depending on calculations, the consumer class could recover less than 10% of their actual damages. He also said the settlement offered no meaningful relief to roughly three-quarters of the affected class—current 360 Savings account holders—who continue to experience financial harm.

“Under the proposed settlement, these millions of class members would continue to experience the same financial harm that they have already experienced for years,” Novak wrote.

The judge emphasized that despite the case’s challenges—including class certification and the burden of proof—the strength of the plaintiffs’ claims warranted far greater compensation.

Breakdown of the $425 Million Deal

Under the now-rejected agreement, Capital One had agreed to pay $425 million, split between two pools:

• $300 million to compensate for lost interest based on what customers would have earned under the 360 Performance Savings rate, and

• $125 million for those who still hold 360 Savings accounts.

But the forward-looking relief was deemed woefully inadequate. Judge Novak noted that even with the added interest pool, the estimated 4 to 5 million account holders would earn roughly 0.8% interest for just 16 months—a rate one-fourth or even one-eighth of the promised “high-interest” Performance accounts.

State Attorneys General Push Back

The proposed settlement faced fierce opposition from 18 state attorneys general, representing nearly half of the U.S. population. Leading the charge was New York Attorney General Letitia James, who accused Capital One of bait-and-switch tactics—enticing customers with high-interest savings promises only to deliver subpar returns.

The coalition of attorneys general urged the court to strike down the deal, arguing it “fails to adequately redress the harms” and even saves Capital One money by masking the true value of restitution with inflated settlement figures.

Judge Novak credited their involvement heavily, calling their opposition “substantial,” despite fewer than 20 individual objectors and under 100 opt-outs from the class.