-Caveat Lector-
Providian is on the cutting edge of the credit card
industry's 'bad habits.'
"The question now is whether Providian can maintain its
break-neck growth if it [doesn't deceive] in its marketing."
CREDIT GIANT ACCUSED OF PILING ON CHARGES
Employees say Providian urged them to mislead
by Sam Zuckerman
San Francisco Chronicle, June 1, 1999
Providian Financial Corp., the San Francisco credit card
giant that is under investigation for possible unfair business
practices, instructed its telemarketers to engage in
high-pressure, misleading sales tactics, according to more than a
dozen current and former employees who spoke to The Chronicle.
Many complaints that have been lodged against the company
involve the sale of add-on products -- such as credit insurance
and memberships in auto clubs, buying clubs and discount drug
plans -- to people who said they did not want them.
"When I first started working there, I thought the
company was doing good things for customers by helping them
rebuild their credit," said Kim Williams, who worked for 1 1/2
years as a customer service representative in Providian's San
Francisco headquarters.
But Williams quit last year, in part because she felt bad
about pushing products that she considered useless. "I never
thought they were worth anything," she said. "I thought we were
just bilking customers out of their money."
Providian specializes in issuing credit cards to people
other lenders had dismissed as deadbeats. Its cardholders include
people who previously had trouble paying their bills, older
people who never had credit cards before and widowed or divorced
people without credit histories in their own names.
The San Francisco district attorney's office is
investigating Providian's sales and collection practices. A
series of civil lawsuits charge the company with unfair and
deceptive business practices.
The Better Business Bureau has received 850 complaints from
Providian customers nationwide. Among the gripes is that the
company is slow to post customer payments, which generates late
fees.
From 1996 to 1998, Providian's revenues from late and
over-limit charges, add-on products, and other customer fees grew
470 percent to $703.5 million, while total revenues grew only 120
percent, to $2.4 billion.
In response to the criticism, Providian stresses that it
obeys all consumer laws and regulations, and guarantees its
customers "100 percent satisfaction."
"We help people to build, protect and responsibly use
credit," said company spokesman Marc Loewenthal. Providian wants
"an active and lasting customer relationship," he said.
'ENHANCED CUSTOMER SATISFACTION'
Last week, after Providian's stock had fallen by one-third
on news of the district attorney's investigation, Providian
announced an "enhanced customer satisfaction program."
Among other steps, Providian said, it will reverse late fees
and cancel sales of add-on products if consumers had not intended
to buy them. It also hired Ernst & Young to review its payment
processing procedures.
The company said its actions were not an admission that it
had deceived customers. Its stock rose 15 percent after the
announcement.
MAINTAINING GROWTH
The question now is whether Providian can maintain its
break-neck growth if it reins in its marketing.
"Their whole way of selling was to mislead the customers,"
said Linda Sherry of the San Francisco advocacy group Consumer
Action. "If they were to clean up the act, they might not sell
as much."
Jack Weiss, a 72-year-old San Francisco printing salesman,
said he got a credit card from Providian in 1996, although he
never bought anything with it.
In 1997, Providian sent him an unsolicited membership in its
DrivePro auto club. "They sent me this DrivePro card that I
didn't ask for and charged me $99 for it," said Weiss, who was
already a member of another auto club.
Weiss said he called and wrote Providian, but was unable to
get the charge reversed. Meanwhile, he was racking up late fees
on the money Providian said he owed for DrivePro.
Weiss tried to cancel his credit card account, he said, but
the company continued to bill him for his outstanding balance.
Finally, it hired a collection agency.
"My experience with them was dreadful," he said.
Providian said it could not discuss Weiss' case because of
privacy rules.
PRESSURE TO SELL
Current and former Providian employees who spoke with The
Chronicle said they were under fierce pressure to sell add-on
products, especially "credit protection."
"That was our big moneymaker," said one former customer
service specialist who asked not to be identified. "The amount
sold was tremendous, and the claims on it were so few."
Many credit card companies sell credit insurance, which
provides benefits to cardholders who become disabled or
unemployed.
Most programs pay the customer's minimum payment and let
them continue to use the card. But Providian's program merely
freezes the balance -- making no payments -- and disallows
further use of the card.
Meanwhile, Providian's monthly charge for the product,
commonly 79 cents for every $100 of balance, is among the highest
on the market, according to Consumer Action.
"Credit insurance is one of the most overpriced rip-off
products in the marketplace," said Ed Mierzwinski of U.S. Public
Interest Research Group in Washington, D.C. "Providian has
invented a product that's even worse."
Providian's Loewenthal said that the company's credit
protection ensures that customers do not get a negative report on
their credit record and that some customers would not be eligible
for credit at all if they did not buy protection.
The company's telemarketers sold the product by reading from
a script, which was worded in a way that made many customers
think that they were merely requesting information when actually
they were signing up for the product.
"If they say, 'Yes, send me the information,' you hit 'Yes'
and it's automatically (charged to) the account," said Samara
Alharby, 21, who recently lost her job working on overdue
accounts at Providian's Sacramento office.
"I was required to sell credit protection even to people who
were over their credit limit," Alharby said. Although
telemarketers earned wages, not commissions, they received
bonuses for meeting quotas and could be disciplined or fired if
they fell short. To make quotas, some salespeople gave short
shrift to disclosure, Providian employees said.
"The telemarketers were reading through the scripts really
fast," said one former employee who monitored marketing calls.
"The customers didn't know what they were talking about."
INUNDATED WITH COMPLAINTS
Five current or former customer service representatives said
they were inundated with complaints from cardholders who ended up
with credit protection that they never wanted.
A collection specialist in the company's Fairfield offices
estimated that 25 percent of the calls she handled involved
complaints that credit protection was sold deceptively.
"I'd ask, 'Did you approve the addition of credit
protection?' and they would say, 'No, I just asked for
information.' "
Loewenthal said the company makes sure all telemarketing
scripts obey the law. Salespeople are regularly monitored to make
sure they stick to scripts, he said.
Current and former Providian employees said they were not
directly aware of telemarketers who did not read disclosures or
sold products to people who specifically had declined them, which
would violate the law. But several said they suspected such
activities did take place because of the large number of
customers who insisted that they had never agreed to buy
products.
Several former employees said they suspected certain
telemarketers in Providian's Kentucky call center made such
improper sales because of a high volume of customer complaints.
"We would tell (managers), 'This is what's going on in
Kentucky,'" said Williams.
Providian spokeswoman Laurie Cole said any telemarketer who
was found not to have read disclosures would be disciplined and
retrained, and fired if they repeated the offense. Any employee
who sold products without customer authorization would be fired
immediately, Cole said, although she declined to say how often
such sanctions were imposed.
'AGGRESSIVE IN MARKETPLACE'
Providian's Wall Street fans describe the company as a
hard-charging but sophisticated organization that is scrupulous
about not crossing the line into illegal activity.
They say the company is bound to generate a
larger-than-average number of complaints because it is dealing
with many customers who have had credit problems.
"The company has always been aggressive in the marketplace.
But have they done anything illegal? I doubt it," said Merrill
Lynch analyst Michael Hughes.
Providian, of course, is far from the only credit card
company criticized for unfair business practices.
Many card issuers have recently raised fees for late
payments and exceeding credit limits, generating howls of
protest.
DISCLOSURE LEGISLATION
Congress is considering legislation that would toughen
credit card disclosure requirements, a measure the industry
bitterly opposes.
Still, Providian is "on the cutting edge of the industry's
bad habits," said PIRG's Mierzwinski.
The company changed its name from First Deposit in 1994.
Three years later, it was spun off its parent, a Kentucky
insurance company, and became an independent, publicly traded
company.
Providian's most aggressive growth, and most of the consumer
complaints, have come since the spin-off.
Although some of its customers have good credit records,
much of the company's success came from its proprietary formula
for pinpointing customers who had past credit problems but were
still likely to pay back debts.
Today, Providian is the nation's ninth-largest credit card
company with a stock market value of $13.7 billion.
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