Capital One 2012 Annual Report Download - page 279

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
agreement attached to the Memorandum. This agreement is contingent on preliminary and final court approval of
the class settlement. In November 2012, the court granted preliminary approval of the class settlement.
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
Interchange Lawsuits. As a result, in the first quarter of 2008, we reduced our Visa-related indemnification
liabilities of $91 million recorded in other liabilities with a corresponding reduction of other non-interest
expense. We made an election in accordance with the accounting guidance for fair value option for financial
assets and liabilities on the indemnification guarantee to Visa, and the fair value of the guarantee at
December 31, 2011 and December 31, 2012 was zero. In January 2011, we entered into a MasterCard Settlement
and Judgment Sharing Agreement, along with other defendant banks, which apportions between MasterCard and
its member banks any costs and liabilities of any judgment or settlement arising from the Interchange Lawsuits.
In March 2011, a furniture store owner, on behalf of himself and other merchants who accept Visa and
MasterCard branded credit cards, filed a class action in the Supreme Court of British Columbia (Vancouver
Registry) against the Visa and MasterCard membership associations related to credit card interchange fees. In
May 2011, another merchant, on behalf of himself and other merchants who accept Visa and MasterCard branded
credit cards, filed a class action in the Ontario Superior Court of Justice (Toronto Region) asserting the same
alleged violations of law related to credit card interchange fees and network rules. In April 2012, Capital One
Financial Corporation was included as a defendant, along with several other member banks, to an existing class
action against Visa and MasterCard that is pending in the Superior Court of Quebec (District of Montreal) and
brought by a merchant corporation on behalf of itself and other merchants that accept Visa and MasterCard
branded credit cards. In July 2012, two other plaintiff merchant corporations brought class action lawsuits on the
same alleged violations of law, filed in the Saskatchewan Court of Queen’s Bench and the Alberta Court of
Queen’s Bench. In December 2012 and January 2013, other merchant corporations brought new class actions on
the same alleged violations filed in the Alberta Court of Queen’s Bench and the Saskatchewan Court of Queen’s
Bench, respectively. All seven class actions name Visa and MasterCard and a number of member banks,
including Capital One Financial Corporation or Capital One Bank (Canada Branch), which issues only
MasterCard branded credit cards in Canada. The class action complaints allege that the associations and member
banks are liable for civil conspiracy, unjust enrichment, constructive trust and unlawful interference with
economic interests and violated Canadian anti-competition laws by (a) conspiring to fix supra-competitive
interchange fees and merchant discounts, and (b) requiring participation in the respective networks and
adherence to Visa and MasterCard Rules to acceptance of payment guarantee services. Plaintiffs’ motion for
class certification in the British Columbia action is set for hearing in April 2013.
Late Fees Litigation
In 2007, a number of individual plaintiffs, each purporting to represent a class of cardholders, filed antitrust
lawsuits in the U.S. District Court for the Northern District of California against several issuing banks, including
us. 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, and injunctive relief. 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 claims under the National Bank Act, the
Depository Institutions Deregulation Act of 1980 and the California Unfair Competition Law (the “UCL”), but
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