Capital One Reaches $3M Auto Loan Class Action Settlement

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A class of Maryland plaintiffs who allege that Capital One failed to properly apply state statutes regarding debt cancellation contracts for auto loans may be able to share in a $3 million class action settlement achieved after months of negotiations with the bank.

The proposed settlement resolves a class action lawsuit (Decohen v. Capital One) alleging that Capital One acquired certain auto loan contracts which elected Maryland’s Credit Grantor Closed End Credit Provisions (CLEC) and contained debt cancellation agreements, or GAP Agreements, which were defective under CLEC.

Maryland lending laws require that if borrowers, whether for a auto loan or any other item, purchase a cancellation contract containing a GAP Agreement, that the lender must forgive any principal left in the loan if a vehicle is totaled as a result of an accident or other event, less whatever payment a car insurer made. According to the class action lawsuit, Capital One failed to reimburse auto loan contract holders for amounts the bank received over the principal lending amount following the total loss of their vehicles.

Capital One had argued that they were not governed by these state laws, and further alleged that they could gauge the remaining payments a person owed by citing industry buying guides to assess the value and then dividing it by the number of payments left. Lead plaintiff Philip Decohen alleged in the class action lawsuit that this was inaccurate and further did not account for interest that naturally accrued over the period of the car loans.

The Capital One auto loan class action settlement is estimated to include roughly 2,200 borrowers who financed GAP Agreements which allow for the use of retail car guides in the calculation of the vehicle’s value, where the borrowers suffered a total loss of the vehicle. The Settlement Class includes two subclasses: (1) all borrowers up to 1,500 transactions where no remaining loan balance remained due the account following the total loss and the application of the GAP Agreement, and (2) all borrowers in up to 707 transactions who have a remaining loan balance due following the total loss and the application of the GAP Agreement.

One reason for the class action settlement may have been a recent decision by the Fourth Circuit Court of Appeals. It ruled that while the Office of the Comptroller of the Currency had issued regulations that would protect national banks from state regulations regarding debt cancellation contracts, they “explicitly concern debt cancellation agreements entered into by national banks.”

Since the regulations of the state, especially the Credit Grantor Closed End Provisions, were not especially onerous or burdensome, Capital One could not cite the OCC regulations, especially because the original contracts had been agreed to by entities, according to the appeals court’s decision.

Further, the Dec. 26, 2012 decision noted that the bank could not allege that the laws and guidance were at cross purposes because an entity “that chooses to cancel all of a customer’s remaining debt would be in compliance with both the CLEC and federal regulations.”

Under the proposed Capital One auto loan class action settlement, Capital One has agreed to waive all outstanding balances that are owed in connection with CLEC contracts and to dismiss any pending lawsuits based on such deficiencies or balances. The settlement agreement also requires Capital One to send requests to credit reporting agencies that any balance on the Class Members’ accounts be reported as zero and that the account should be reported as “paid as agreed.”

If the class action lawsuit settlement is approved, Class Members will receive a refund check by mail based on the amount collected by Capital One in excess of the principal amount financed on the auto loan, less a proportionate share of attorneys’ fees and court expenses. Those persons who had a remaining balance on their auto loan account following the total loss of their vehicle but who did not pay in excess of their principal amount financed will receive $200.

Class Members will not be required to submit a Claim Form to claim these benefits. All Class Members will automatically receive benefits from the class action settlement unless they opt out.

Decohen is represented by class action attorneys Benjamin H. Carney and Martin E. Wolf of Gordon & Wolf Chtd., and Mark H. Steinbach of O’Toole Rothwell.

The Capital One Auto Loan Class Action Lawsuit is Philip Decohen v. Capital One NA, Case No. 10-cv-03157, in the U.S. District Court, District of Maryland.