Capital One Sued Over Its Card Ads

Minnesota Atty. Gen. Mike Hatch sued Capital One Financial Corp.’s bank unit Thursday over the ads for its “No Hassle” credit card, which promote a supposedly fixed annual interest rate of 4.99%.

Customers who miss a payment deadline or exceed their credit limit can end up with annual interest rates of as much as 27%, Hatch said at a news conference. About 40% of the card’s users will be paying higher rates within two years, he said.

“It’s very clear that these ads are designed for the sole purpose of getting people to believe that the rate is fixed and it can’t change,” Hatch said.

Capital One spokeswoman Diana Don said the McLean, Va.-based company “has cooperated fully with the attorney general’s investigation and believes it has acted properly and in full compliance with the law.”

One “No Hassle” television ad features barbarian marauders catapulting a man for using a rival credit card -- illustrating that interest rates for other banks’ credit cards will change arbitrarily, while Capital One’s rates won’t. Fine print saying “Subject to change without notice” flashes on the screen briefly.

Patsy Trusty of Minnesota said she got a Capital One credit card to finance her inventory as a Mary Kay saleswoman after receiving an offer in the mail. The word “fixed” was repeated throughout the mailing, which said the interest rate was 4.9%.

Trusty said she never paid late. But after she exceeded her credit limit, she said, the bank raised her rate to 7.9%. When she called to complain, Capital One lowered it to 5.9%, she said.

Hatch’s lawsuit seeks an unspecified amount of damages. He also wants Capital One to change its TV ads.

Capital One shares slipped 37 cents to $83.79 on the New York Stock Exchange. They are up 36.7% this year.