Anyone who watches TV has seen the commercial where a couple is making a large credit card purchase. At the same time, a hoard of barbarians begins to descend on them. When one spouse cautions that putting the purchase on a credit card will cost a lot in interest, the other says "It's OK, we're using our Capital One card." The barbarians stop and walk away, in utter dejection.

Cute commercial, but the state of Minnesota contends that basically, it's a lie.

Minnesota Attorney General Mike Hatch filed suit against Capital One Bank and Capital One F.S.B. for using false, deceptive and misleading television advertisements, direct-mail solicitations, and customer service telephone scripts to market credit cards with allegedly "low" and "fixed" interest rates that, unlike its competitors' rates, will never increase.

In fact, the lawsuit alleges that Capital One increases the interest rate on such cards up to 400% for consumers who trigger a "penalty" rate by defaulting in any number of ways.

"Capital One aggressively markets its brand image as the credit card company with the nation's lowest fixed rates," Hatch said. "But that image is false. If you do something as simple as pay a day late, your rate with Capital One can sky-rocket overnight."

The State's suit alleges that Capital One uses "penalty rate" pricing to offer a supposedly "fixed" interest rate to consumers, but then increases that rate when an individual account holder defaults. Capital One also retains the right to unilaterally increase an account holder's interest rate -- for any reason or for no reason at all -- based upon a "change in terms" provision in its credit card agreement.

Specifically, the lawsuit faults Capital One's marketing practice as follows:

? Television Ads Capital One runs television ads with the same basic format, script, graphics and visual punch line designed to create the false and deceptive impression among consumers that its competitors' rates will increase, but Capital One's rates will not. In Capital One's "No-Hassle" ads, for instance, two people compete to pay for lunch, one with a competitors' card, the other with a Capital One card which has a "low and fixed" rate. When the man with a competitor's card asks what's going to happen to his rate, he is physically shot upward by a catapult operated by barbarians or a breaching whale. Capital One then orally and visually tells consumers that it offers the nation's lowest fixed rate at 4.99%.

? Written Solicitations Capital One bolsters its false television ads with deceptive direct mail solicitations. In one solicitation, for instance, Capital One describes its 4.99% interest rate as "low" thirteen times and as "fixed" seventeen times, including on both sides of the envelope, in the body of the text, in the application itself and elsewhere, including boxes comparing the interest rates and "savings" of Capital One's credit cards with consumers' other loans.

? Customer Service Scripts When consumers contact Capital One to apply for the card, Capital One scripts its customer service representatives to evade a direct response to the question "What does fixed mean?" Capital One answers: "Unlike most credit card companies, Capital One's fixed rate is not variable and will not go up and down as interest rates change." Only if a consumer "probes" another two times does Capital One concede that it cannot guarantee that its rates will stay the same forever.

The state's lawsuit alleges that Capital One's marketing practices violate Minnesota's laws prohibiting false advertising, consumer fraud, and deceptive trade practices. The suit seeks injunctive relief prohibiting Capital One's false, deceptive and misleading conduct and civil penalties.

The defendants are Capital One Bank and Capital One F.S.B. Both are Virginia-based entities that offer credit card products to prime and subprime consumers. Capital One is one of the top ten largest credit card issuers in the United States. According to Capital One Financial Corporation's most recent Form 10-Q filing with the U.S. Securities and Exchange Commission, Capital One's domestic credit card loans totaled $46.1 billion as of September 30, 2004. These loans generated net income of $414.4 million for July, August and September, 2004, a 50% increase from the same period in 2003.

Capital One's marketing expenses were $826.6 million from January through September, 2004. Capital One's solicitations claim that the company has 46 million customers.

Consumers who believe they were victimized by Capital One's practices may contact the Citizen Assistance Line of the Minnesota Attorney General's Office at 651-296-3353 or 1-800-657-3787.