Providian Settles Lawsuits

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Providian Financial Corp., San Francisco, said last week that it agreed to pay $105 million to settle a series of class-action lawsuits that alleged that one of the nation's largest U.S. issuers of MasterCard and Visa credit cards had engaged in deceptive practices, including billing customers for products they never ordered.


The settlement covers millions of consumers who used Providian credit cards dating back to March 1995. It also covers legal fees. A claims process will be announced in the spring of 2001.


Providian, which lends high-interest savings and loan services to consumers with troubled credit histories and offers, said settling the lawsuits was part of an effort to put its legal problems behind it and that the settlement would not change its forecast for fourth-quarter earnings.


"We are pleased to have resolved these consolidated lawsuits and put the distraction of this litigation behind us," Alan Elias, spokesman for Providian, said in a statement. "The business and marketing practices that are the subject of the lawsuits are history."


In June, Providian also agreed to pay more than $300 million to customers after allegations of hidden charges, deceptive sales tactics and hard-sell advertising in what was believed to be one of the biggest payouts ever in a credit card consumer fraud case.


That settlement with the federal Office of the Comptroller of the Currency, the San Francisco District Attorney's Office and the California attorney general came more than a year after officials began investigating the company's business practices.


Providian admitted no wrongdoing as part of the deal.


However, Providian officials said it has spent the past 18 months focused on an intense customer satisfaction initiative to deal with an increasing number of unhappy cardholders and legal inquiries.


As a result of the initiative to improve customer satisfaction, Providian said that during an 18-month period ending November 30, 2000, it has seen strong improvements in customer retention, and a decline in customer complaints have declined. During the same period, Providian's customer base has grown by nearly 50 percent to more than 15 million cardholders.


The class-action lawsuit alleged that Providian engaged in unlawful business practices involving claims about the sales and marketing of its products. These included enrolling customers in membership for certain products without authorization and then making it extremely difficult to cancel.


The firm also allegedly tailored their products to people who would not use them and included unwanted add-on products, some of which cost up to $120 per year.


Providian said that it would take a charge of about $22 million in the fourth quarter to help pay for the settlement. That represents the portion of the deal for which it had not previously set aside reserves.


The class-action lawsuits had been consolidated in the California Superior Court in San Francisco and the Federal District Court for the Eastern District of Pennsylvania.
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