A class action suit filed on Friday claims that Capital One's payment protection plan imposes so many restrictions and uses so much red tape as to be essentially worthless.

The suit, filed in U.S. District Court for the Southern District of California, says that thousands of citizens across the country have been targeted by Capital Ones subprime credit card marketing programs. The payment protection plan is designed to protect a consumers credit rating by automatically making minimum payments on one or more credit cards.

The suit contends that Capital One forces the product on consumers without providing them a full run-down of its terms, places severe limitations on the applicability of its benefits, and saddles the consumer with an unbearable amount of administrative red tape.

According to the suit, payment protection is either pushed through direct marketing and acceptance by the consumer or, in some cases, imposed on cards automatically. In the latter situation, the consumer must affirmatively cancel payment protection.

Predictably, the alleged scam has disproportionately affected consumers who can least afford it. According to the complaint, payment protection is typically offered to consumers who fall into a subprime credit category and therefore have low credit limits on their credit cards.

The suit also alleges that Capital One enrolls consumers without first ensuring that they are employed, a prerequisite to receiving benefits under the plan. As a result, a number of unemployed and therefore ineligible consumers have been charged for the program and seen nothing in return. Additionally, many elderly consumers are enrolled in payment protection, despite the fact that any illness or incapacitation affecting their ability to make payments renders them ineligible for the program.

Also ineligible are consumers who are self-employed, who are not employed full-time (a term left undefined by Capital One literature), or who are retired or working at a seasonal job. Anyone collecting disability must provide a monthly certification from his physician.

Benefits denied

Lead plaintiff Linda McCoy, a California resident, signed up for a Capital One credit card with payment protection in 2007, and paid for the programs benefits for nearly a year and a half. In March 2009 she began collecting disability, and later that year lost her job entirely.

When McCoy tried to take advantage of payment protection, she was denied benefits. As a result, she ran up a balance of $1,260 on an account with a $1,000 limit, and also incurred over $100 in fees.

The program is allegedly aimed at generating additional fee income for Capital One, and also conveniently lower[s] available credit to its subprime cardholders.

The suit is being brought on behalf of all California residents who were solicited by mail and/or phone regarding payment protection, and who paid for the program. The suit claims that thousands of California Capital One cardholders have paid for Payment Protection and receive no benefit. The suit alleges counts in unjust enrichment and violations of the Truth in Lending Act and the Consumer Legal Remedies Act.

Capital One is one of the countrys largest credit card issuers in the country, boasting over $13 billion in revenue in 2008 alone.