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In 2008, Anna Trachtenberg, a 53-year-old unemployed Pennsylvania homemaker, enrolled in a payment protection service for her credit card from Citigroup Inc. The plan promised to make the minimum monthly payment on her credit card balance for one year if she experienced certain “life changing” events, such as a disability, loss of income, or marriage.

Trachtenberg didn’t learn until two years later, when she canceled her plan, that she would not have gotten a dime had she had ever tried to collect on the benefit she thought she was promised. That’s because Trachtenberg was unemployed when she signed up — one of a handful of disqualifying factors, which Citigroup should have made clear at the outset, a class action lawsuit filed this week in Pennsylvania state court claims.

The lawsuit alleges that Citigroup failed to clearly describe the terms of its payment protection service in its marketing pitches and failed to inform thousands of customers that they didn’t qualify for benefits, a violation of Pennsylvania’s consumer protection law. The program “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 [that] the product is essentially worthless,” the complaint says.

The Citigroup class action is one of several similar lawsuits accusing big banks of misconduct in administration of their payment protection plans.

Richard Golumb, a lawyer for Trachtenberg, told the Center for Public Integrity that his firm plans to file a lawsuit today accusing HSBC Group of deceptive marketing with its payment protection plan. Another suit in Florida against Capital One Financial Corp. has been settled with undisclosed terms, he said. A third credit card company, Discover Financial Services, is fighting a payment protection lawsuit in New Jersey.

A Citigroup spokesman said the lawsuit is without merit and that the bank plans to mount “a vigorous defense.” HSBC declined to comment and Capital One did not respond to requests for comment.

The banks’ behavior of peddling payment protection services to vulnerable customers and those with poor credit ratings, is “egregious,” Golumb said. The banks collect billions of dollars more in premiums from customers than they pay out, he said.

Citigroup charges 89 cents for every $100 of a customer’s credit card balance each month for the service, according to the lawsuit. Additional benefits cost subscribers another $3.29 per month. A customer carrying a balance of $10,000, for example, will pay $92.29 per month, the lawsuit claims.

The wide-ranging U.S. financial reform bill, which is expected to narrowly win Senate approval later this month, does not specifically address payment protection programs offered by credit cards. However, the legislation creates a Consumer Financial Protection Bureau, which will have broad powers to police unfair or deceptive marketing of financial products. Financial reform bill lobbying data analyzed by the Center for Public Integrity showed banks and credit card companies spent tens of millions of dollars and hired prominent lobbyists such as former House Democratic leader Richard Gephardt, his former aide, Steve Elmendorf, and former Democratic Sen. John Breaux of Louisiana to influence the bill.

Different terms and conditions apply to each of the dozens of payment protection products sold by banks through telemarketers and direct mail. For example, Citigroup’s Payment Plus program will not pay benefits to customers who are employed by family members, who work part time or seasonally, who are retired, who are unemployed for more than 90 days, or who qualify for state or federal unemployment benefits.

Golumb said that the Citigroup suit was filed in Pennsylvania because of the difficulty of getting a national class action certified. He said he expects that similar complaints will be filed in other states and coordinated for the purposes of discovery.

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