Capital One 2008 Annual Report Download - page 163

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In 2007, a number of individual plaintiffs, each purporting to represent a class of cardholders, filed antitrust lawsuits in the United
States District Court for the Northern District of California against several issuing banks, including the Company (the In Re Late
Fees Litigation). These lawsuits allege, among other things, that the defendants conspired to fix the level of late fees and over-limit
fees charged to cardholders, and that these fees are excessive. In May 2007, the cases were consolidated for all purposes and a
consolidated amended complaint was filed alleging violations of federal statutes and state law. The amended complaint requests civil
monetary damages, which could be trebled. In November 2007, the court dismissed the amended complaint. Plaintiffs appealed that
order to the Ninth Circuit Court of Appeals. The plaintiffs appeal challenges the dismissal of their National Bank Act, Depository
Institutions Deregulation Act of 1980 and California Unfair Competition Law claims, but not their antitrust conspiracy claims.
The Company believes it has meritorious defenses and intends to defend these cases vigorously. Given the complexity of the issues
raised by these lawsuits and the uncertainty regarding: (i) the outcome of these suits, (ii) the likelihood and amount of any possible
judgments, (iii) the likelihood, amount and validity of any claim against the member banks, including the Company and its subsidiary
banks, (iv) changes in industry structure that may result from the suits and (v) the effects of these suits, in turn, on competition in the
industry, member banks and interchange fees, the Company cannot determine at this time the long-term effects of these suits.
In 2007, the Company recorded indemnification liabilities of $90.9 million for certain Visa-related litigation. This total includes $31.8
million related to the settled Amex lawsuit which is discussed above, and $59.1 million, recorded in accordance with FIN 45,
reflecting Capital Ones estimated share of potential damages as a Visa member from certain other Visa-related litigation.
In the first quarter of 2008, Visa completed an IPO of its stock. With IPO proceeds Visa established an escrow account for the benefit
of member banks to fund certain litigation settlements and claims. As a result, in the first quarter of 2008, the Company reduced its
Visa-related indemnification liabilities of $90.9 million recorded in other liabilities with a corresponding reduction of other non-
interest expense.
Other Pending and Threatened Litigation
In addition, the Company is commonly subject to various pending and threatened legal actions relating to the conduct of its normal
business activities. In the opinion of management, the ultimate aggregate liability, if any, arising out of any such pending or threatened
legal actions will not be material to its consolidated financial position or its results of operations.
Tax issues for years 1995-1999 are pending in the U.S. Tax Court. Although the final resolution of the case is uncertain and involves
unsettled areas of law, the Company has accounted for this matter applying the recognition and measurement criteria of FIN 48.
Note 20
Other Variable Interest Entities
The Company has various types of off-balance sheet arrangements that we enter into in the ordinary course of business. Off-balance
sheet activities typically utilize SPEs that may be in the form of limited liability companies, partnerships or trusts. The SPEs raise
funds by issuing debt to third party investors. The SPEs hold various types of financial assets whose cash flows are the primary source
of repayment for the liabilities of the SPE. Investors only have recourse to the assets held by the SPE but may also benefit from other
credit enhancements.
The Company is involved with various SPEs that are considered to be VIEs, as defined by FIN 46(R). With respect to its investments,
the Company is required to consolidate any VIE in which it is determined to be the primary beneficiary. The Company reviews all
significant interests in VIEs it is involved with such as amounts and types of financial and other support including ownership interests,
debt financing and guarantees. The Company also considers its rights and obligations as well as the rights and obligations of other
variable interest holders to determine whether it is required to consolidate the VIEs. To provide the necessary disclosures, the
Company aggregates similar VIEs based on the nature and purpose of the entities.
The Companys involvement in these arrangements can take many different forms, including securitization activities, servicing
activities, the purchase or sale of mortgage-backed and other asset backed securities in connection with our investment portfolio, and
loans to VIEs that hold debt, equity, real estate or other assets. In certain instances, the Company also provides guarantees to VIEs or
holders of variable interests in VIEs. In addition to the information contained in this Note, the Company has disclosed its involvement
with other types of VIEs in Note 13  Mortgage Servicing Rights, Note 18  Securitizations and Note 19  Commitments,
Contingencies and Guarantees.