Trustmark Corp. of Jackson, Miss., said it has agreed to settle a collateral protection insurance class action for $8.8 million.

The $5.2 billion-asset company said last week that it had received preliminary court approval for settlement of the case. A final court hearing is scheduled for the spring.

Collateral protection insurance is purchased by banks to provide coverage for cars whose owners have allowed their own policies to lapse. The bank then adds the premiums to the balance of the original car loan.

The plaintiffs charged not only that the premiums were above normal market rates, but also that the bank did not notify them of the new policies or their costs.

Trustmark officials denied any wrongdoing. Gray Wiggers, a Trustmark spokesman, said the bank would have won the case if it had attempted to fight the suit in court.

"A business decision was made to avoid the enormous costs of litigation and diversion of energy required to defend against a series of continuous lawsuits," he said.

Such suits have burdened numerous large banks around the country in recent years and led to sizeable settlements. First Union Corp., for example, settled for $26.1 million in August, and NationsBank Corp. paid out $5.6 million in a similar case in 1994. Barnett Banks Inc., paid plaintiffs $19 million in 1993.

The Trustmark class action - which included at least 5,000 plaintiffs, according to their lawyer - followed a $38.5 million jury decision against the bank nearly two years ago. That suit was brought by two people who claimed they had been unfairly billed for $9,500 in insurance premiums on a 1988 Nissan.

Though it was reduced on appeal to $5 million, the $38 million punitive award, believed to be the highest punitive in the state's history, caught the eye of other customers and lawyers in the region and led to the filing of other class actions.

Trustmark's proposed settlement would consist of a $4 million cash payment and a forgiveness of the borrowers' debts, valued at $4.8 million. Trustmark would also clear the borrowers' credit reports, said the plaintiffs' lawyer, Lawrence Abernathy.

The bank also would agree not to initiate another collateral protection insurance program for five years without court approval, he said.

"These suits have done the consumers a lot of good and opened the eyes of the bankers to some wrongs that maybe some of them weren't recognizing," said Mr. Abernathy.

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