UPDATE 1-Mexico watchdog flunks HSBC on credit card transparency

(Adds comment from HSBC)

MEXICO CITY, June 10 (Reuters) - The Mexican unit of HSBC bank earned a failing grade in a recent study looking at credit card transparency, a consumer watchdog said on Wednesday.

HSBC (HSBA.L) ranked lowest in the review of 18 banks that looked at the contracts clients must agree to, banks' websites, credit card statements, and credit card advertisements, according to Condusef, the government's financial products watchdog.

Spain's BBVA (BBVA.MC), the leading bank in Mexico, scored highest in the study at 8.6 points. Canada's Scotiabank (BNS.TO) was second with 8.2 points.

HSBC, Mexico's fifth-largest bank, was rated 4.5 out of 10 in the study, Condusef director Jose Maria Aramburu told reporters.

"Five (banks) failed in terms of being rated below five," Aramburu said. The other four banks rated below five were minor local players.

An HSBC official said the information used in the study was out of date. He said clients are now provided with more transparent information and that the bank's website also has been improved.

Mexican banks are often accused of charging unreasonably high interest rates and fees on their credit cards, and of making it tough to compare products.

While critics say Mexico's banks do not compete among themselves, studies also show that the country's consumers fail to shop among different banks.

In May, Mexico's Senate approved a proposal to curb hefty credit card interest rates and limit account maintenance fees and other bank charges. The country's lower house has yet to vote on the legislation. (Reporting by Tomas Sarmiento; Editing by Gary Hill and Carol Bishopric)