Scary, but good article!

My favorite quote:

I guess I'm old enough to remember when banks still wanted you to put money into their bank in the form of a savings account or certificate of deposit. I guess when that didn't bring in enough money, they resorted to getting you to put money into their banks, in the form of interest and fees.

 

Unsophisticated users of credit are real popular when times are good enough they don't go under. But when the economy hits a rough spot, the bankers who grew up learning the five C's make it thru, as will his customers.

Just look what happened to Providian.

 

Very interesting article

 

For others (like me) who had to look it up: http://en.wikipedia.org/wiki/Providian

and an interesting history of the Credit Card business http://www.pbs.org/wgbh/pages/frontline/shows/credit/more/rise.html

 

The articles only hint at the predatory practices engaged in, implying their profitability was from lending money to riskier consumers for which they could charge higher rates, sort of the junk bond dealers of the credit card business.

Among other practices, they apparently just placed "credit protection" charges on their customer's accounts, without disclosure or authorization.

There were also consumer reports at the time, and I think I saw some ex-employee reports somewhere, too, that they inflated late charges by delaying posting from date of receipt, or even shredding payments, so they could add the late charges or trigger rate increases.

http://forum.hotplugins.com/cgi-bin/showreply.cgi?tpid=25265

Here is a clearer picture:
http://www.consumeraffairs.com/news/providian_settlement.html

"$300 Million Providian Settlement

June 29, 2000
Providian National Bank has agreed to reimburse customers at least $300 million to about 3 million of its 13 million customers in a settlement with the U.S. Office of the Comptroller of the Currency (OCC) and the San Francisco District Attorney's Office.

Providian, the nation's sixth-largest credit-card issuer, was accused of deceiving and unfairly charging its customers since June 1995 by misleading them about its credit-protection plan, balance transfers, annual fees and other services.

Providian said it disagreed with the charges but agreed to the settlement to avoid lengthy litigation. The bank also claimed that complaints against it have dropped sharply since it started a customer-satisfaction program last year.

The settlement was the largest enforcement action ever by the OCC and is the first enforcement action under the Federal Trade Commission Act by a bank regulatory agency.

"We will not tolerate abuses" that breach the trust between banks and their customers, Comptroller of the Currency John D. Hawke Jr. said in announcing the settlement.

Besides the reimbursements and a $5.5 million civil fine negotiated by the San Francisco District Attorney, Providian agreed to change its policies and telemarketing scripts so that all fees, charges and restrictions are accurately and fully disclosed.

In the past, Providian marketed cards with "no annual fee" but charged customers $156 annually for a credit-protection plan. Regulators said the bank also misled customers about the rebates and lower interest rates they would receive for transferring balances. "

 

http://www.classcounsel.com/settlements/providian.html

"Providian Pays $105 Million To Settle Lawsuits By Cardholders

...
Plaintiffs in class action litigation pending in the San Francisco Superior Court and the United States District Court, Eastern District of Pennsylvania, have reached a settlement agreement with Providian Financial Corporation and its subsidiaries ("Providian"), requiring Providian to pay $105 million to settle allegations that it engaged in unlawful business practices affecting consumer credit accounts. The settlement was approved in October 2001. Among other things, Plaintiffs alleged that Providian violated consumer protection and other laws in connection with the marketing and sale of Providian's add-on products, including Credit Protection, PricePro, Drive Pro, HealthPro, and credit line increases.

The settlement was reached following almost two years of litigation and nine months of mediation. The mediation was conducted before the Honorable Ellen S. James, a retired superior court judge. Plaintiffs' counsel anticipate that class members will be notified of the terms of the settlement in the spring of 2001. Plaintiffs are represented by the law firms of Green Welling LLP; Girard Lee & Gibbs, LLP; Lieff, Cabraser, Heimann & Bernstein, LLP; and the Sturdevant Law Firm, each headquartered in San Francisco, California; Kaplan, Kilsheimer & Fox, LLP, headquartered in New York, New York; and Fine, Kaplan and Black, R.P.C., headquartered in Philadelphia, Pennsylvania.

The $105 million will cover restitution to Providian customers, "in-kind" payments to customers, and the costs and expenses of the litigation, including attorneys' fees. More than three million customer could be eligible for reimbursements under the proposed settlement, according to Robert S. Green, counsel for Plaintiffs. The settlement follows another settlement by Providian in June 2000 of charges brought by San Francisco and by the Office of the Comptroller of the Currency. In that settlement, the largest ever in an OCC enforcement action, Providian agreed to repay $300 million to its customers.

Providian denies any wrongdoing, but says it hopes the settlement will put its consumer disputes into the past. "The business practices that are the subject of these lawsuits are history, both literally and figuratively," Providian spokesperson Alan Elias said, in an article appearing in the Wall Street Journal on Friday, December 29, 2000. Mr. Elias reportedly said that since last year, Providian has examined its marketing procedures and has taken substantial steps to boost customer satisfaction."

 

http://sanfrancisco.bizjournals.com/sanfrancisco/stories/2002/03/18/daily45.html

"Providian to pay $38M to settle securities fraud suit

San Francisco Business Times - March 21, 2002

Providian Financial Corp. agreed to pay $38 million to settle a class action securities fraud suit, according to a legal industry publication.

The suit alleges that the San Francisco-based credit card issuer inflated its profits with fees to consumers that it was later forced to return to customers in a separate $305.5 million settlement with federal regulator, according to The Legal Intelligencer.


The suit claims Providian and two of its top executives -- former Chairman and CEO Shailesh Mehta and Chief Financial Officer David Petrini -- should have known they were making false statements or omitting information.

Mehta resigned in October, as higher loan losses battered the company's third-quarter earnings and its stock plummeted. Petrini resigned as vice chairman last month but is acting as chief financial officer after the departure of Jim Rowe.

In addition to the $305.5 million settlement in June 2000, Providian agreed in April 2001 to pay $105 million to settle a class-action suit that claimed the company wrongfully charged customers for credit line increases, credit insurance and other products.

Providian admitted no wrongdoing in the previous settlements, which netted many consumers less than $20 while law firms grabbed millions.

Providian spokesman Alan Elias said the company also claims no wrongdoing in the securities case; he would not comment further because the action is ongoing.

A preliminary approval hearing before U.S. District Judge William Yohn Jr. of the Eastern District of Pennsylvania is scheduled for Friday, Elias said.

Providian's stock, once trading at more than $100 per share, was unchanged at $5.90 in mid-day trading Thursday on the New York Stock Exchange. "

 

Yep, I got dragged into that Providian Class action as a CC holder (victim stated on my notice) I recieved I think it was like 14 bucks along with a TL CO.
When I called to cancel a $200 CL card they "poped" me with the $159 thing, 2 months early, put me over drawn and refused to close my account with a balance.. I refused to pay and never will pay. it's almost $3,000 now with WAM but drops in 2 months...I had charged approximatly $46.00

 

In addition to the Providian ex-employee report, linked above, regarding holding and shredding customer checks to increase late fees, the new movie, Maxed Out also reports it.