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HSBC Sued for Fraud Over Credit-Card Protection Plan

July 7 (Bloomberg) -- Units of HSBC Holdings Plc, Europe’s biggest lender by market value, were sued by U.S. customers who said the bank’s credit-card payment-protection service defrauds disabled, retired and unemployed consumers.

While the service purports to safeguard accounts by suspending or canceling required minimum payments when customers become disabled or unemployed, the circumstances that trigger protection are “varied, complicated and always changing,” according to complaints filed July 2 against HSBC units in federal courts in Philadelphia and Camden, New Jersey.

“The payment protection device is designed to prey on the financially insecure and is virtually worthless because of the numerous restrictions that are imposed,” according to the complaints.

The bank enrolls people before sending them restrictions in small print that are “incomplete, indecipherable, misleading and obfuscatory,” according to the complaints. The plan, which costs $1.35 per $100 of a month-ending credit-card balance, excludes the self-employed, part-time workers, retired people and those who are already unemployed or on disability, the customers said.

Kate Durham, a spokeswoman for London-based HSBC, said the bank doesn’t comment on legal matters.

State Consumer Laws

The Camden complaint, brought by Marilyn Rizera, said HSBC Bank USA Inc. and HSBC Card Services Inc. are violating the New Jersey Consumer Fraud Act and engaged in breach of contract. The Philadelphia case, by Edward T. Esslinger, Gloria Glover and Adrath Rogers, said the bank is violating the Pennsylvania Unfair Practices and Consumer Protection Law.

Both sets of plaintiffs seek to proceed with group, or class-action, lawsuits.

“Payment Protection is so confusing as to when coverage is triggered, so restricted in terms of the benefits it provides to subscribers, and processing claims is made so difficult by HSBC, that the product is essentially worthless,” according to Rizera’s complaint.

In her complaint, Rizera, 54, said she is disabled and enrolled in the payment protection plan in January 2009. Rizera has never held a job, and HSBC never inquired into her employment or disability status before enrolling her, she said.

“Her credit card account is still charged for payment protection every month even though she is virtually ineligible to collect payment protection benefits,” according to the complaint.

The cases are Rizera v. HSBC Bank USA Inc., 10-cv-03375, U.S. District Court, District of New Jersey (Camden); and Esslinger v. HSBC Bank Services, 10-cv-03213, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).

To contact the reporter on this story: David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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