Providian
Encyclopedia
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 had more than 10 million card holders at the time of its sale. Washington Mutual
, 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
, New Hampshire
, and Texas
.
founded a credit card company called First Deposit Corp.
Providian was a company that sold credit in the "subprime" market. Providian provided credit cards primarily to the lowest income groups in the U.S. at high interest rates. The annual percentage rate
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
, 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 [sic]credit." 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. It made 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
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.
On November 7, 2001, the Hon. Stuart R. Pollak
of the Superior Court of California, the City and County of San Francisco, 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.
Credit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...
issuers in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
when it was sold to Washington Mutual
Washington Mutual
Washington Mutual, Inc. , abbreviated to WaMu, was a savings bank holding company and the former owner of Washington Mutual Bank, which was the United States' largest savings and loan association until its collapse in 2008....
for approximately US$6.5 billion in October 2005. Providian was headquartered in San Francisco, California
San Francisco, California
San Francisco , officially the City and County of San Francisco, is the financial, cultural, and transportation center of the San Francisco Bay Area, a region of 7.15 million people which includes San Jose and Oakland...
, and had more than 10 million card holders at the time of its sale. Washington Mutual
Washington Mutual
Washington Mutual, Inc. , abbreviated to WaMu, was a savings bank holding company and the former owner of Washington Mutual Bank, which was the United States' largest savings and loan association until its collapse in 2008....
, 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
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
, New Hampshire
New Hampshire
New Hampshire is a state in the New England region of the northeastern United States of America. The state was named after the southern English county of Hampshire. It is bordered by Massachusetts to the south, Vermont to the west, Maine and the Atlantic Ocean to the east, and the Canadian...
, and Texas
Texas
Texas is the second largest U.S. state by both area and population, and the largest state by area in the contiguous United States.The name, based on the Caddo word "Tejas" meaning "friends" or "allies", was applied by the Spanish to the Caddo themselves and to the region of their settlement in...
.
History
In 1984, Andrew KahrAndrew Kahr
Andrew Seth Kahr was the founder and CEO of First Deposit Corp, which later became known as Providian, and was acquired by Washington Mutual in 2005; it is now owned by Chase Bank....
founded a credit card company called First Deposit Corp.
Providian was a company that sold credit in the "subprime" market. Providian provided credit cards primarily to the lowest income groups in the U.S. at high interest rates. The annual percentage rate
Annual percentage rate
The term annual percentage rate , also called nominal APR, and the term effective APR, also called EAR, describe the interest rate for a whole year , rather than just a monthly fee/rate, as applied on a loan, mortgage loan, credit card, etc. It is a finance charge expressed as an annual rate...
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 Kahr
Andrew Seth Kahr was the founder and CEO of First Deposit Corp, which later became known as Providian, and was acquired by Washington Mutual in 2005; it is now owned by Chase Bank....
, 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 [sic]credit." 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. It made 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 Thompson
Larry Dean Thompson is an American lawyer, most notable for his service as deputy Attorney General of the United States under United States President George W. Bush until August 2003...
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 Suit
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
Stuart R. Pollak
Stuart R. Pollak is an Associate Justice of the California Court of Appeal, division three, in San Francisco, California.-Background:...
of the Superior Court of California, the City and County of San Francisco, 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.
External links
- Providian Financial website
- 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