Neiman Marcus has settled a lawsuit with HSBC Finance, the operational unit of HSBC formerly known as Household International. The lawsuit pertained to private label credit cards - the cards issued by HSBC Finance (HSBC NV) containing the Neiman Marcus name instead of HSBC’s name. Part of HSBC’s private label credit card agreements with the owning merchants pertains to “ongoing compensation.” In Neiman Marcus’s case the kickback clause is referred to as “allocation of additional income.” Here is how it works:

A Nieman Marcus customer sends in their payment on time. HSBC Finance claims the payment was received late. HSBC charges a late charge, and Neiman Marcus receives part of that as “ongoing compensation.” A sweet deal for HSBC and Neiman Marcus, and a lousy deal for the customer. While one expects Neiman Marcus customers to be a notch above others, for instance teenagers at Best Buy (another HSBC private label merchant), one questions why Neiman Marcus is involved with HSBC to begin with. In most cases it is a troubled company or the company failed to perform due diligence.

The bottom line in this matter is this: The dispute dates to September when, according to Neiman’s court filings, HSBC Bank and HSBC Private Label tried to increase fees and raise interest rates on the credit-card contract with Neiman.

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