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Credit Card Issuers Move to Settle Lawsuits

Two of the top U.S. credit card issuers recently took steps to settle class-action lawsuits alleging deceptive practices.

Providian Financial Corp. agreed late last month to pay $105 million to settle a series of class-action lawsuits alleging that the company had engaged in deceptive practices, including billing credit card customers for products they never ordered.

Bank One's First USA unit, the nation's largest issuer of credit cards, recently proposed paying $40 million to settle lawsuits alleging improper charges to its credit card customers.

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

Providian, which offers high-interest savings and loan services to consumers with troubled credit histories, said settling the lawsuits was part of an effort to put its legal problems behind it. The company said the settlement would not change its forecast for fourth-quarter earnings. Providian, San Francisco, is one of the largest U.S. issuers of MasterCard and Visa credit cards.

In June, Providian also agreed to pay more than $300 million to customers following allegations of hidden charges, deceptive sales tactics and hard-sell advertising in what was thought 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 the company has spent the past 18 months focusing on a customer satisfaction initiative to deal with an increasing number of unhappy cardholders and legal inquiries.

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

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

The class-action lawsuits settled last month 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 products without authorization, then making it extremely difficult to cancel.

The firm also was accused of tailoring products to people who would not use them and including unwanted add-on products, some of which cost up to $120 a year.

Providian said 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 California Superior Court in San Francisco and U.S. District Court for the Eastern District of Pennsylvania.

In the Bank One case, the company denied any wrongdoing and said it would fight the lawsuits vigorously if its settlement offer was rejected.

The proposed settlement would affect customers whose accounts were handled in two payment processing centers run by an outside contractor, the National Processing Co., Louisville, KY, from Jan. 1, 1998, to Aug. 31, 1999. The settlement was described in a letter mailed to millions of Bank One credit card customers in November.

A court hearing on the proposal is scheduled for Jan. 24.

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