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Providian Shares Drop As Fraud Investigation Continues

Arthur J Pais in San Francisco

Providian Financial Corp, America's biggest issuer of cards to people with tarnished credit and a leader in home loans, is fighting back charges that it instructed telemarketers to use misleading and high pressure sales tactics.

The firm with assets worth over $ 16 billion reportedly has nine million customers nationwide. It also issues unsecured credit cards and ranks as the ninth largest credit card issues in America.

Providian is led by Shailesh J Mehta, an IIT alumnus, and one of the most profiled business leaders in the United States. Mehta is chairman of the board and president of the firm. He is credited with streamlining the company in the past five years and introducing customized credit cards.

Providian shares dropped for a fourth day on June 4 amidst fear that a three week-long investigation into the sales and collection practices of the company could drag on. Shares have fallen 21 per cent this week and 38 per cent since the consumer fraud investigation began.

The company, which has over 10 million customers, denied allegations in a recent San Francisco Chronicle report that more than a dozen current and former Providian employees have disclosed methods to sell credit card customers "add on" products.

One of the employees who says she quit the company after working for it for a year-and-a-half partly because she was tired of pushing products she considered useless.

"I never thought they were worth anything," former Providian customer service representative Kim Williams said. "I thought we were just bilking customers out of their money."

But a company spokesperson asserted immediately after Williams's charges became public, "We help people to build, protect and responsibly use credit."

Several employees told the media that the high-pressure tactics resulted because of the bonuses the company provided for exceeding targets.

The article came a few days after the San Francisco District Attorney's office began an investigation into Providian's sales and collection practices. A series of civil suits against the company allege imposed unauthorized and excessive charges and falsely promised to repair damaged credit. The class action filed by a San Francisco law firm alleges that the company not only hid terms of its card agreements, and gave the impression that a $12.95-per-month credit protection card was mandatory when it was not.

The credit protection card "was our big moneymaker," a former employee told the Chronicle. "The amount sold was tremendous."

Reports in newspapers have suggested that some credit card firms use tactics to trap customers into spending more than they intended on their card because the $ 500 billion credit card market has become highly competitive, and the growth of borrowing has also come down.

The company asserted that the behavior described in the Chronicle article "is not tolerated at Providian," and offered to cancel sale of add-on products if consumers had not intended to buy them.

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