[corp-ethics] FWD: Case Study - Is Legality Enough?
- Credit Giant Accused of Piling On Charges
Employees say Providian urged them to mislead
Sam Zuckerman, Chronicle Staff Writer
Tuesday, June 1, 1999
©1999 San Francisco Chronicle
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
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
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
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
``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.
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
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
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
``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
``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
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
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
``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
``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
``The company has always been aggressive in the marketplace. But have
they done anything illegal? I doubt it,'' said Merrill Lynch analyst Michael
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.
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.
©1999 San Francisco Chronicle Page A1
eGroups.com home: http://www.egroups.com/group/corp-ethics
http://www.egroups.com - Simplifying group communications