Capital One defeats cardholders' lawsuit over foreign exchange charges

By Jonathan Stempel

(Reuters) - A federal judge in Virginia on Monday dismissed a lawsuit accusing Capital One of overcharging credit and debit card customers on transactions made in foreign currencies.

U.S. District Judge Patricia Tolliver Giles in Alexandria said cardholders in the proposed class action did not identify language in their card agreements that was "clear and unambiguous" about what rates and fees Capital One would impose.

Four plaintiffs said Capital One sought to maximize profit by charging "fictional" rates when it converted foreign currency transactions into dollars.

They said the McLean, Virginia-based bank ignored rules set by card processors Visa and Mastercard that it use wholesale market rates or government-mandated rates.

The plaintiffs said this also boosted profit on transactions in which cardholders pay a percentage of the transaction, typically 3%, as a fee.

The judge said the plaintiffs failed to show that their card agreements incorporated the processors' rules, or created an "objectively justified expectation" that their exchange rates would resemble those incurred by Capital One or the processors.

"Plaintiffs have failed to plausibly allege facts sufficient to state that defendants breached a contractual duty owed to plaintiffs through defendants' own conduct or the processors' conduct," Giles wrote.

Lawyers for the plaintiffs did not immediately respond to requests for comment. Capital One did not immediately respond to similar requests.

Capital One's credit card business accounted for $25.7 billion, or 70%, of the bank's net revenue in 2023.

The plaintiffs' lawyers filed a similar lawsuit against Bank of America in the Charlotte, North Carolina federal court.

On Dec. 6, a federal magistrate judge recommended rejecting Bank of America's motion to dismiss that case. A district judge will decide whether to accept that recommendation.

Capital One said on Feb. 19 that it plans to buy Discover Financial Services, whose card network rivals Visa's and Mastercard's, for $35.3 billion in stock.

The case is Wright et al v Capital One Bank (USA) NA et al, U.S. District Court, Eastern District of Virginia, No. 21-00803.

(Reporting by Jonathan Stempel in New York; Editing by Bill Berkrot)