The Connecticut Attorney General is investigating the sales and billing practices of the nation’s eighth-largest credit card issuer Providian Financial Corp., compounding the company’s rapidly-mounting legal woes.
The company acknowledged the latest investigation Monday, saying that it is prepared to defend its business practices. “Providian is working hard to become an industry leader in customer service and satisfaction,” said company Chief Public Policy Officer Konrad Alt. “We are optimistic that Attorney General Blumenthal will recognize the impressive strides Providian has made toward achieving that objective.”
Providian — which has been aggressively marketing an Internet credit card called Aria Visa — saw its share price plummet 26 percent by midday Monday as news of the investigation reached Wall Street. Trading of the company’s shares was triple the daily volume.
Legal Wrangles Multiply
In addition to the Connecticut investigation, Providian’s business practices have been the focus of a probe by the San Francisco, California district attorney’s office since last May. The company is said to have been in discussions with the DA’s office about that investigation.
The U.S. Office of the Comptroller of the Currency — the principal banking regulator in the country — is also reportedly reviewing Providian’s consumer practices.
Additionally, a federal court in Philadelphia, Pennsylvania recently consolidated seven federal lawsuits that were filed against the company on behalf of consumers.
At least four of the suits were brought in a two-week stretch in June. They allege that Providian erroneously charged consumers late fees and misled them into buying products. In July, Providian said that its internal investigation uncovered a computer programming error that resulted in erroneous late fees being charged to customers for several months. The company took a one-time charge of $20 million (US$) to refund customers.
The beleaguered company hired Alt, the former counsel to the Senate Banking Committee, the next week, creating a new position that includes overseeing regulatory and community affairs.
Finally, Providian was also accused by Internet credit card competitor NextCard of copyright infringement and unfair business practices in a suit filed in July. NextCard said that Providian copied one of its banner advertisements to drive traffic to the site of its then-new Aria credit card launch.
Providian has staunchly denied the charge.
San Francisco-based Providian is the country’s largest provider of credit cards to consumers with bad credit. It recently reported third quarter revenues of $1.12 billion and net income of $151 million.
The company has marketing deals with E*Loan and LookSmart to promote its Aria card.