Minnesota's attorney general has sued credit card issuer Capital One Financial Corp, accusing the big US credit card issuer of falsely advertising low rates and defrauding consumers. Attorney General Mike Hatch said Capital One nearly quadruples the rate it charges some card customers who trigger a "penalty" rate by paying a bill a day late or defaulting in other ways, according to a complaint filed on Thursday in a Ramsey County District Court in Minnesota and posted on Hatch's Web site.

A Capital One spokeswoman said the company "believes it has acted properly and in full compliance with the law," and is co-operating with the attorney general to resolve the matter.

According to the complaint, cardholders who receive an initial 4.99 percent interest rate and later default may see their rate skyrocket to 19.8 percent, even though Capital One advertised that the lower rate was "fixed."

The lawsuit said Capital One's marketing violates state laws against false advertising, consumer fraud and deceptive trade practices. Minnesota is seeking restitution for cardholders, civil penalties, disgorgement of profits, and an injunction barring further wrongdoing. Capital One is based in McLean, Virginia.

Copyright Reuters, 2005