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Class Action Against HSBC Settles for $23.5 Mil.

Plaintiffs Targeted Credit Card

Issuer Over Payment Protection Plan

A federal judge in Philadelphia has preliminarily approved a $23.5 million settlement in a class action brought against HSBC Bank over the company’s payment protection plan for its credit card users.

The settlement, if granted final approval this October, would be the fourth such settlement across the country against credit card issuers that provided customers a way to defer payments if they were involuntarily unemployed, according to Richard Golomb of Golomb & Honik, one of the three lead co-counsel in Esslinger v. HSBC Bank Nevada N.A.

Golomb and attorneys at other firms have successfully reached settlements in Florida and Illinois for classes raising similar issues.  A settlement was reached in the U.s. Northern District of Florida against Capital One for $60 million.  Another was reached against Chase for $20 million in the U.S. Southern District of Florida.  A third settlement was reached in the U.S. Northern District of Illinois for $10.5 million against Discover, Golomb said.

His firm and others have brought similar suits against the country’s 10 or so largest credit card issuers in the past three-and-a-half years.  He said they settled fairly quickly with some of the early cases, but negotiations have become harder in some of the cases since the U.S. Supreme  Court’s April 2011 ruling in AT&T v. Concepcion.  In that case the high court ruled mandatory arbitrations  in class actions were acceptable under the Federal Arbitration Act.

While arbitration was not an issue in HSBC’s case, Golomb said defendants are fighting for arbitration in some of the other cases, either before the district courts or circuit courts.

The issue in all of these cases is the issuers’ exceptions to those who are eligible for payment protection.  Under the plans, the credit card companies agree to defer payments typically for up to one year if the cardholder becomes involuntarily unemployed.  Purchasers of this plan pay about 89 cents for every $100 of their credit card balance to be eligible for the debt relief if they later become unemployed,  Golomb said.

There is a separate agreement cardholders must sign when purchasing the payment protection plan.  Golomb said that “buried” in the agreement are exceptions to who can be eligible for the plan.  Seasonal employees such as landscapers, those who are self-employed, those who are 65 years or older and those who are retired are not eligible.  Golomb said no one from the credit card company asks purchasers whether they fall into any of those categories when they are buying the product.

“But they are happy to take your money,” Golomb said.

In Esslinger, there are about 11 million potential class members who could benefit from the settlement.  They are split into three groups.  Those  who were per se ineligible under the terms of the plan are the first class and will make the most money off of the settlement, Golomb said.

The second category of class members are those who didn’t even realize they signed up for the plan when they were talked into it as part of the process of calling to activate their new credit card.  The third group is made up of those who signed up for the plan and are simply unsatisfied with it now that they have learned about how the plan works, he said.

According to court documents, no class member will receive more that $150 out of the settlement, with the bulk of the payouts ranging from between $15 and $60 depending on within which class category the class member falls.  Class representatives are seeking $3,500 a piece, according  to their motion to approve the settlement.

The settlement was reached after several days of mediation before mediator Jonathan B. Marks of Marks ADR in Washington.

U.S. District Court Judge Berle Schiller of the Eastern District of Pennsylvania gave preliminary approval to the settlement last week and slated the final approval hearing for Oct. 1.  He instructed the lead class-counsel to submit an application for attorney fees and costs not to exceed 33 percent of the settlement total.  Golomb said class counsel would be requesting one-third of the settlement.  Along with Golomb & Honik, lead class counsel are Nagel Rice in New Jersey and Taus Cebulash & Landau of New York.

Julia B. Strickland of Stroock & Stroock & Lavan rpresents HSBC in the case.  She was not available for comment by press time.


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