Providian Financial Corporation was one of the leading

credit card A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's accrued debt (i.e., promise to the card issuer to pay them for the amounts plus the ...

issuers in the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

when it was sold to

Washington Mutual Washington Mutual (often abbreviated to WaMu) was the United States' largest savings and loan association until its collapse in 2008. A savings bank holding company is defined in United States Code: Title 12: Banks and Banking; Section 1842: Def ...

for approximately US$6.5 billion in October 2005. Providian was headquartered in

San Francisco, California San Francisco (; Spanish for " Saint Francis"), officially the City and County of San Francisco, is the commercial, financial, and cultural center of Northern California. The city proper is the fourth most populous in California and 17t ...

, and had more than 10 million card holders at the time of its sale.

, Inc., continued to run the company as a wholly owned subsidiary, out of its San Francisco headquarters. At its peak, the company employed approximately 13,000 people nationwide. Providian had significant operations in

California California is a state in the Western United States, located along the Pacific Coast. With nearly 39.2million residents across a total area of approximately , it is the most populous U.S. state and the 3rd largest by area. It is also the m ...

New Hampshire New Hampshire is a U.S. state, state in the New England region of the northeastern United States. It is bordered by Massachusetts to the south, Vermont to the west, Maine and the Gulf of Maine to the east, and the Canadian province of Quebec t ...

, and

Texas Texas (, ; Spanish: ''Texas'', ''Tejas'') is a state in the South Central region of the United States. At 268,596 square miles (695,662 km2), and with more than 29.1 million residents in 2020, it is the second-largest U.S. state by ...

History

In 1981,

Parker Pen The Parker Pen Company is a French manufacturer of luxury writing pens, founded in 1888 by George Safford Parker in Janesville, Wisconsin, United States. In 2011 the Parker factory at Newhaven, East Sussex, England, was closed, and its productio ...

acquired two banks to start a credit card company by the name of First Deposit, based in San Francisco. In 1984, First Deposit was sold to the Kentucky insurance company Capital Holding, later renamed Providian. When Providian's insurance operations were acquired by Aegon, Providian's credit card business was spun off as a separate company. Providian was a company that sold credit in the "

subprime In finance, subprime lending (also referred to as near-prime, subpar, non-prime, and second-chance lending) is the provision of loans to people in the United States who may have difficulty maintaining the repayment schedule. Historically, subp ...

" market. Providian provided credit cards primarily to the lowest income groups in the U.S. at high interest rates. The

annual percentage rate The term annual percentage rate of charge (APR), corresponding sometimes to a nominal APR and sometimes to an effective APR (EAPR), is the interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on a loan, mo ...

s (APR) charged by Providian were as high as 29.9 percent. In a March 1999 memorandum published by the ''San Francisco Chronicle'', the founder of the company,

Andrew Kahr Andrew Seth Kahr is an American mathematician and financial consultant. He was the founder and CEO of First Deposit Corp., which was later acquired by Providian. Kahr grew up in New York City, where he attended the Fieldston School of the Ethical ...

, asked company executives about its customers: ''"Is any bit of food too small to grab when you're starving and when there is nothing else in sight? The trick is charging a lot, repeatedly, for small doses of instrumental icredit."'' Many critics contended that the extended credit makes the borrower poorer than before the credit was extended. Having the opposite effect on officers and directors of the company, making them conspicuously wealthier. David Alvarez, former president of the integrated-card unit, made a US$12.2 million profit selling his stock before the company disclosed that it was in deep trouble.

Larry Thompson Larry Dean Thompson (born November 15, 1945) is an American lawyer and law professor, most notable for his service as deputy Attorney General of the United States under United States President George W. Bush until August 2003. Early life and ...

sold all his stock having a value of approximately US$4.7 million following his confirmation hearing and a short time before Providian's financial problems became public information and the stock price plummeted.

Class action suits

Beginning in mid-1999, a number of class-action suits were filed against the company regarding aggressive sales tactics for various "credit protection" services being sold to Providian credit card holders. On November 7, 2001, the Hon. Stuart R. Pollak of the Superior Court of California, the City and County of

San Francisco San Francisco (; Spanish for " Saint Francis"), officially the City and County of San Francisco, is the commercial, financial, and cultural center of Northern California. The city proper is the fourth most populous in California and 17t ...

, granted final approval to a settlement agreement in the case, and certified a settlement class. The settlement required Providian to pay over $100 million in cash, credits, and other benefits to the class, and to stop certain practices that were at issue in the class actions. Combined with an earlier settlement with governmental entities, the award constitutes the largest settlement ever against a credit card company for alleged widespread unlawful business practices. Providian National Bank and its parent company,

Providian Financial Providian Financial Corporation was one of the leading credit card issuers in the United States when it was sold to Washington Mutual for approximately US$6.5 billion in October 2005. Providian was headquartered in San Francisco, California, and ...

, were accused of deceiving and unfairly charging its customers since June 1995. The case was initiated by the U.S. Office of the Comptroller of the Currency (OCC) and the San Francisco District Attorney’s Office. In 2000, Providian agreed to reimburse $300 million to 3 million customers, who were victims of misleading sales pitches and charged for products they did not want, including Providian credit-protection plan, balance transfers, annual fees, and other services. The settlement was the largest enforcement action ever by the OCC and is the first enforcement action under the

Federal Trade Commission Act The Federal Trade Commission Act of 1914 was a United States federal law which established the Federal Trade Commission. The Act was signed into law by US President Woodrow Wilson in 1914 and outlaws unfair methods of competition and unfair acts ...

by a bank regulatory agency.

References

External links

''How Providian misled card holders'', San Francisco Chronicle, May 5, 2002

''How Providian misled card holders'', SFGate.com, May 5, 2002

''Providian Gripe Site - One Cardholders Nightmare'', ProvidianFinancialSucks.com

''David Alvarez's 12.2 million profit opened Nexxo Financial'', nexxofinancial.com, Nov 29, 2010

{{JPMorgan Chase Defunct companies based in California Companies based in San Francisco