Capital One 2011 Annual Report Download - page 266

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS—(Continued)
same level as we provided as of September 30, 2011 and an increase of $400 million from the estimate we
provided as of December 31, 2010. This increase is attributable to increased activity from uninsured investors,
increased governmental and regulatory scrutiny of mortgage practices and continued difficulty in the housing
market and overall economy. Notwithstanding our ongoing attempts to estimate a reasonably possible amount of
loss beyond our current accrual levels based on current information, it is possible that actual future losses will
exceed both the current accrual level and our current estimated upper-end of the amount of reasonably possible
losses. There is still significant uncertainty regarding the numerous factors that may impact the ultimate loss
levels, including, but not limited to, litigation outcomes, future repurchase claims levels, ultimate repurchase
success rates and mortgage loan performance levels.
Litigation
In accordance with the current accounting standards for loss contingencies, we establish reserves for litigation
related matters when it is probable that a loss associated with a claim or proceeding has been incurred and the
amount of the loss can be reasonably estimated. Litigation claims and proceedings of all types are subject to
many uncertain factors that generally cannot be predicted with assurance. Below we provide a description of
material legal proceedings and claims.
For some of the matters disclosed below, we are able to determine estimates of potential future outcomes that are
not probable and reasonably estimable outcomes justifying either the establishment of a reserve or an incremental
reserve build, but which are reasonably possible outcomes. For other disclosed matters, such an estimate is not
possible at this time. For those matters where an estimate is possible, excluding the reasonably possible future
losses relating to the U.S. Bank Litigation, the DBSP Litigation, and the FHLB of Boston Litigation because
reasonably possible losses with respect to those litigations are included within the range of reasonably possible
representation and warranty liabilities discussed above, management currently estimates the aggregate high end
of the range of possible loss is $50 million to $175 million. Notwithstanding our attempt to estimate a reasonably
possible range of loss beyond our current accrual levels for some litigation matters based on current information,
it is possible that actual future losses will exceed both the current accrual level and the range of reasonably
possible losses disclosed here. Given the inherent uncertainties involved in these matters, and the very large or
indeterminate damages sought in some of these matters, there is significant uncertainty as to the ultimate liability
we may incur from these litigation matters and an adverse outcome in one or more of these matters could be
material to our results of operations or cash flows for any particular reporting period.
Interchange Litigation
In 2005, a number of entities, each purporting to represent a class of retail merchants, filed antitrust lawsuits (the
“Interchange Lawsuits”) against MasterCard and Visa and several member banks, including our subsidiaries and
us, alleging among other things, that the defendants conspired to fix the level of interchange fees. The complaints
seek injunctive relief and civil monetary damages, which could be trebled. Separately, a number of large
merchants have asserted similar claims against Visa and MasterCard only. In October 2005, the class and
merchant Interchange Lawsuits were consolidated before the U.S. District Court for the Eastern District of New
York for certain purposes, including discovery. Fact and expert discovery have closed. The parties have briefed
and presented oral argument on motions to dismiss, class certification and motions for summary judgment and
are awaiting decisions from the court.
The defendant banks are members of Visa U.S.A., Inc. (“Visa”). As members, our subsidiary banks have
indemnification obligations to Visa with respect to final judgments and settlements of certain litigation against
Visa. 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, including the
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