The U.K. financial institution HSBC has reportedly reached a settlement with a group of companies that claim the bank misled them about the need for product add-ons to their loans.
Reports in Law360 this week said a group of commercial inspection and safety firms reached a confidential settlement with HSBC Invoice Finance. Four MSS Group Ltd. units reached the agreement to settle a dispute that accused HSBC of forcing corporate borrowers of purchasing credit protection for business loans, which they argued was unnecessary.
The publication, citing documents from the High Court, explained that the companies accused HSBC of misselling invoice protection when they obtained a $1.33 million loan to finance their purchase of another company. In addition to selling their invoices in an agreement to repay the lender, HSBC is accused of forcing the borrowers to obtain credit protection to mitigate the risk of late invoice payment or non-payment, as well as the risk of customers becoming insolvent.
While that credit protection product was optional, the companies accused HSBC employees of misleading them to believing it was required. According to court documents, the companies said they would not have signed up for the service, which cost them about $464,000, had they known it was not required.
The firms reportedly only found out the product was optional when they switched bank providers in 2014. HSBC has denied the allegations, arguing that the companies were presented with clear information that stated the credit protection add-on was not required.
“A reasonable person in the position of the [companies] would have been on notice that they were not obliged to pay for credit protection,” an HSBC lawyer reportedly wrote, court documents showed.
Court documents also revealed that the companies accused HSBC of forcing them into invoice financing after they requested an overdraft limit increase.
Law360 said HSBC and its attorneys did not respond to requests for comment.