Providian to Make Rebates

Last month’s issue of Spotlight ranked Providian Financial Corporation as the seventh largest bank credit card issuer in the U.S. as of the end of the first quarter. Now bank regulators are asking that the firm reimburse its customers about $300 million. According to David Leonhardt’s article in the New York Times, "people paid annual fees when they had been told there would be none, received credit cards they did not know they had signed up for and were subject to higher interest rates than the company had advertised." The Comptroller of Currency, the attorney general of California and the district attorney’s office of San Francisco carried out a yearlong investigation that led to their agreement with Providian. While management considered defending itself in court, it was a "business decision" to agree to the settlement. Providian will be sending reimbursement checks to about three million of its 13 million cardholders. The payments will amount to more than a third of Providian’s 1999 after-tax income.

While the case is obviously highly significant for Providian, it also is a sign of regulators’ increased attention to credit card issuers. Regulators report that they have been receiving more complaints from consumers regarding their bank credit cards than in earlier years. In the agreement with Providian, the regulators relied on the section of the Federal Trade Commission Act barring deceptive practices. The comptroller views violation of this section of the act as threatening the banks’ safety and soundness. As will be seen in the next item, there is more to come.