DALLAS (CN) - HSBC Bank Nevada will cut off credit to 192,000 Neiman Marcus credit cardholders, costing the retailer $500 million a year, "in an effort to force acceptance of unfavorable contract changes" in the credit cards, Neiman Marcus and Bergdorf Goodman claim in Dallas County Court. The dispute appears to be related to the national credit crisis, as HSBC insists upon increasing interest rates.
Neiman Marcus claims it depends on its branded credit cards for more than half its sales, and that HSBC is prohibited by contract from unilaterally changing the terms.
HSBC bought Neiman Marcus' private credit card business for $640 million in 2005, and "promised to service existing credit cards issued by Neiman Marcus and to issue credit cards to qualifying new customers," the suit states. The contract was for five years, with three-year extensions.
"Two years into the Program Agreement's initial five-year term, HSBC claimed that it stood to lose more than $8.5 million over the next three years under the existing terms of the credit card accounts and the Program Agreement. In short, HSBC felt that it made a bad deal in buying the credit card accounts," the complaint states.
In September 2007, HSBC proposed changes that would bring it $49.4 million more "by increasing charges and interest."
Neiman Marcus rejected the offer in December. On Jan. 15., "HSBC gave Neiman Marcus two options: either accept new terms or suffer horrific consequences. The new terms would allow HSBC to pocket tens of millions of dollars that would otherwise go to Neiman Marcus. The consequences would result from HSBC's unilaterally altering the contractual Risk Management Policies - alterations that HSBC described in a presentation as 'aggressive across the board credit policy changes'. HSBC's changes, if not enjoined, will result in the cancellation of more than 192,000 credit card accounts and prevent the opening of thousands of new accounts by customers who would qualify for a card under the existing Risk Management Policies."
HSBC "threatened that it will undertake these actions on or about Feb. 15, 2008, if Neiman Marcus does not agree to new terms for the credit card program. HSBC claims that it has begun to initiate the changes to its system necessary to implement these credit-policy changes."
Represented by Susman Godfrey, Neiman Marcus wants HSBC enjoined from instituting the changes, and punitive damages.
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