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New Law Would Provide Protection Against AI Scams, Predatory Lenders, Phishing Schemes And Other Fraud; Capital One Sued For Interest Cheating
THE LEGAL BEAT
The New York State Attorney General’s Office is putting its weight behind legislation to protect small businesses and consumers.
The Fostering Affordability and Integrity through Reasonable Business Practices, or FAIR Business Practices Act is a “program bill” from the Office of the Attorney General (OAG), sponsored in the state legislature by Senator Leroy Comrie and Assemblymember Micah Lasher.
A “program bill” is legislation that originates from the Governor’s, Attorney General’s, or Comptroller’s office to implement a specific program or legislative initiative. It serves as a vehicle for carrying out an Executive policy or program.
“As the federal government steps back from protecting consumers and small businesses, New York must step up to help working families and Main Street businesses,” said Attorney General Letitia James. “The FAIR Business Practices Act will protect small businesses from predatory lenders, homeowners from bad mortgage servicers, patients from abusive debt collection, and much more.”
The bill encompasses protection from predatory lending, abusive debt collection, junk fees, artificial intelligence (AI)-based schemes, online phishing scams, hard-to-cancel subscriptions, data breaches, and other unfair, deceptive, and abusive practices.
This legislation will strengthen and broaden New York’s consumer protection law. It is designed to update New York’s consumer protection law that James has referred to as “antiquated and inadequate.”
The FAIR Business Practices Act would also help stop lenders, including auto lenders, mortgage servicers, and student loan servicers, from deceptively steering people into higher-cost loans. It would reduce unnecessary and hidden fees, and stop unfair billing practices by health care companies.
Similar laws have been introduced multiple times, dating back to 2017, but none of the earlier versions have become law. The bills are currently in committee in both the Assembly and Senate.
The intent of the law is to modernize New York’s general business law to clearly define prohibited acts and practices in the conduct of business, trade or commerce or services. According to its sponsors, New York’s business law is outdated and incapable of providing the protections needed for modern commerce and service. New York’s existing law fails to provide individuals and entities with adequate protections against unfair, deceptive or abusive acts. The sponsors say that New York’s law “lags behind general business statutes in at least 39 other states.”
The filing of individual lawsuits by consumers or lawyers has been historically cost prohibitive in most cases, with the cost of litigation often exceeding the actual damages suffered. This bill would allow for the recovery of statutory damages of up to $1,000 in addition to actual and punitive damages. Also, imposition of mandatory attorney’s fees will increase access to justice for persons seeking legal relief against violators.
The law would allow individuals, organizations, nonprofits, corporations and other legal entities to file a lawsuit against an offender.
The law exempts television and radio broadcasters, publishers or printers of newspapers, magazines or other printed advertising from liability for publishing a false or deceptive ad.
Capital One Sued For Cheating Online Savers
Earlier this month, New York Attorney General James sued Capital One N.A. and Capital One Financial Corporation (Capital One) in the United States District Court for the Southern District of New York for cheating its online savings account customers.
The lawsuit alleges that Capital One marketed its “360 Savings” accounts as “high interest” accounts with “one of the nation’s best savings rates” that would earn its customers more than an average savings account. In reality, while interest rates rose nationwide, Capital One kept the interest rates for its 360 Savings accounts artificially low, effectively cheating its customers out of millions of dollars in lost interest.
Instead, Capital One created “360 Performance Savings,” a nearly identical type of savings account that provided much higher interest rates than 360 Savings – at one point, more than 14 times higher.
The lawsuit says that Capital One intentionally misled its 360 Savings customers about the existence of its 360 Performance Savings product to avoid paying them millions of dollars in interest.
According to the lawsuit, Capital One had two products with similar names: 360 Savings, which paid about .3% interest; and 360 Performance Savings which paid interest as high as 4.35%. The suit says that Capital One worked to keep savers in the dark about the availability of the higher interest rate product. It marketed its 360 Savings as its “high interest” savings account product with “a great everyday rate,” promising customers: “Your money will earn much more than what it would in an average savings or money market account…What’s the catch? There is none.”
“Capital One assured high returns with no catches, then pulled the rug out from under their customers and hoped nobody would notice. Big banks are not allowed to cheat their customers with false advertising and misleading promises,” said Attorney General James.
Attorney General James alleges in the lawsuit that Capital One did not notify its 360 Savings customers of the chance to earn more interest. Capital One even instructed its employees not to tell 360 Savings customers about the new product unless they explicitly asked.
Capital One removed 360 Savings from its website and completely replaced it with 360 Performance Savings, concealing that 360 Savings and 360 Performance Savings existed as separate and distinct products with different interest rates. By doing so, Capital One created a secret, two-tier system of savings accounts in which only new accounts received the high interest rates that Capital One advertised.
In similar litigation in Virginia, Capital One agreed to pay $425 million to settle a class action lawsuit filed in federal court. The lawsuit, filed in the Eastern District of Virginia, accused Capital One of deceptively advertising its 360 Savings accounts as high-interest products and failing to inform customers about higher rates on newer savings accounts.
At the national level, the Consumer Financial Protection Bureau sued Capital One in January over similar allegations, but the Trump administration voluntarily dropped its lawsuit, along with a slew of other lawsuits, after a change in leadership at the CFPB.
