How Providian misled card holders

San Francisco Chronicle ^ | 05/05/2002 | Sam Zuckerman

[Pokey78]

In a memorandum to senior executives of Providian Financial Corp., the giant San Francisco credit card company, founder Andrew Kahr stressed the guiding principle that had made the firm one of the nation's most profitable consumer-finance operations.

In lending to the kinds of high-risk customers Providian specialized in, Kahr wrote, the "problem is to squeeze out enough revenue and get customers to sit still for the squeeze."

[martin_fierro]

I once interviewed for a gig at Providian's Pleasanton, CA branch. Couldn't believe how tight security there was.

[Bonaparte]

I once rented a room to one of Providian's credit salesmen. He used to regale me with tales of all the gullible people he hoodwinked. He was actually proud of it. I saw this as a clue to his character and took precautions against his renegging on his rental agreement. I also took a close look at his legal past. Sure enough, he was a dirtbag.

[Lael]

$96??

Try $384! per year, and I hadn't ever missed a payment! Needless to say, I flushed them down the tubes!

Funny thing, I never applied for a "Providian"; they acquired a bunch of accounts when Discover's Bravo division decided to sell out rather than convert their systems for Y2K.

[Steve Eisenberg]

This San Francisco Chronicle article omitted an extremely important point: Providian is a money-losing company which has been shedding large parts of its business. A Yahoo news search even shows mention of possible bankruptcy. Bad business practices like those doumented in this article are policed by our free market. The lesson here is buyer beware. The free market does take time to do its job, and even in a hyper-regulated industry such as consumer lending, excessive government regulation cannot protect careless consumers.

[FITZ]

tales of all the gullible people he hoodwinked.

Isn't that what all credit cards try to do? I still have some but they're all paid off. Sears is the only one I like even though the interest rate isn't that low unless it's something you buy with 0% and have a year to pay off.

[Hibernius Druid]

Providian represents the scum de la scum of debt collection practices. This report gives just a hint of their lack of business ethics. Check out their nefarious involvements with Direct Merchants Bank, First Select, Inc.,et al.

[Steve Eisenberg]

Funny thing, I never applied for a "Providian"; they acquired a bunch of accounts when Discover's Bravo division decided to sell out rather than convert their systems for Y2K.

Usually I am against government regulations because the free market can do the job of disciplining bad companies without all the regulatory costs now passed on to consumers. But this shows how hard it is to be against all regulations. It seems to me a violation of free market principles for you to choose one lender, perhaps even paying slightly more interest in return for their good reputation, and then be switched over against your will to a company such as Providian which has a terrible reputation. Just 100% banning companies from selling credit portfolios probably won't work because of problems associated with what happens when the lender goes bankrupt. Perhaps lenders should be required to reduce the interest rate by 10% whenever debt is sold. This would force banking executives to spend less time spinning deal with execs from other companies, and more time building their core business. On the other hand, this way of thinking may be the reason why this country got itself into the current legalistic/regulatory mess in the first place.

[Bonaparte]

"Isn't that what all credit cards try to do?"

All financial tools, not just credit cards, have their built-in pitfalls.

My iron laws of open line credit --

1. Only two cards, both issued where you bank. A primary card and a backup.
2. No annual fee on either.
3. Both are either cashback or miles cards.
4. Both are autopaid out of bank account on the day they fall due -- never carry a balance, not even for one day.
5. No extras or frills of any kind, such as "credit card checks" or "insurance." Keep it down to bare bones.
6. No minimum monthly purchase requirement.
7. Watch monthly statement like a hawk. They will try to gouge you. Any extra charge or fee immediately and angrily challenged. They will reverse it.

Banks and credit issuers should always be treated like the criminals they are. Whenever I talk to them, I go into "Captain Bligh" mode.

[stimulate]

"if something was not illegal,it was therefore possible."

Sounds like something that Hillary and Bill Clinton would say, doesn't it?