Providian Financial Corp., one of the most successful and profitable credit card companies, has become a lightning rod for consumer resentment.

Providian is facing four lawsuits seeking class-action status. It is accused of imposing late fees unfairly-when consumers sent payments well in advance of the due date, for example-and charging customers $7.95 a month for credit protection insurance when they did not request it.

The San Francisco district attorney's office is investigating Providian's late-fee practices, and a torrent of negative media reports has ensued.

Providian seems to be bearing the brunt of negative consumer reaction to perceived nickel-and-diming by credit card issuers. Other high-profile companies, notably the First USA division of Bank One Corp., the largest U.S. bank card issuer, have also been taking legal knocks.

Reflecting the sense of outrage, Sen. Phil Gramm of Texas, the chairman of the Senate Banking Committee, asked the Office of the Comptroller of the Currency to conduct an inquiry into whether card issuers are boosting their late fees by deliberately delaying the posting of payments.

Lenders are legally required to post a bill payment on the day it is received, but consumers complain that card issuers seem to be sitting on their checks, resulting in penalty charges.

The furor has intensified as card companies have reduced interest rates for competitive reasons. Ancillary charges-sometimes derided as nuisance fees-have risen to compensate.

In the last two years, banks' income from credit card fees has grown 79%, while card interest income has risen 10%, according to RAM Research Corp. of Gettysburg, Pa.

Late fees "represent the stealth return of the annual fee," said PaineWebber analyst Gary Gordon. "The result is that most customers today pay a late fee at least once a year."

Providian has reacted swiftly to the complaints.

The San Francisco company, which says it is among the 10 largest bank card issuers, established a toll-free number for disgruntled customers. Under a new policy, Providian is allowing two extra days beyond a bill's due date before it assesses a late fee (a one-day grace period was already in place).

It has also hired the accounting firm Ernst & Young to review its payment-crediting system.

In another public relations effort, Providian plans to mail with its statements a "customer satisfaction" policy statement. It includes a promise to reverse late fees in instances when customers feel unjustly charged.

"Given all the attention in the media, we felt we should take additional steps," said Providian spokesman Marc Loewenthal.

Shailesh Mehta, the card company's chairman and chief executive officer, said it is "taking advantage of this opportunity" to reinforce customer satisfaction pledges made at Providian's inception in 1985.

Until a spinoff in 1997, the card issuer was part of an insurance company, once known as Capital Holding and later Providian.

The flap over fees started a few weeks ago when the office of San Francisco District Attorney Terence Hallinan confirmed to a local television station that it was investigating Providian's business practices. Assistant D.A. David Pfeiffer, chief of special prosecutions, is leading the probe.

The consumer lawsuits-initiated by plaintiff bar attorneys who often file shareholder suits against companies that fail to meet earnings expectations-followed the publicity about the investigation.

On May 19, the day of the first news reports, Providian's stock price fell to $106.9375 from $124.125. It hit a low of $78.4375 on June 4, but was up to $84.1875 as of Friday morning.

Brian Smith, a lawyer with Mayer, Brown & Platt in Washington, said "it is not unexpected" that private lawsuits seeking class-action status would follow on the heels of an official investigation.

"That doesn't mean that there isn't a reason for the suit, but it is natural that this happens," said Mr. Smith, a former general counsel of MasterCard International and the Office of the Comptroller of the Currency.

Mr. Smith, who represents card companies but not Providian, said California has historically shown "a lot of judicial support for what are labeled unfair charges by banks to consumers."

He said card issuers are "usually pretty scrupulous" about following laws on disclosing fees and posting charges, although they clearly "seek to find the most advantageous opportunities for themselves."

"With the phenomenal growth of the credit card business and the multiple card offers people have been getting, there tends to be some confusion in the minds of the cardholders as to their contractual terms," Mr. Smith said. "If you're a consumer and you have five cards and you get five notices of change (of terms), it is conceivable that you would be confused."

Consumer Action, a San Francisco consumer advocacy group, said it has been in the middle of the events surrounding Providian. Linda Sherry, editorial director, said her organization has fielded a growing number of complaints about both Providian and First USA.

The Better Business Bureau has logged nearly 900 complaints from around the country against Providian, routing them to its San Francisco office. The district attorney's office reviewed these complaints a few months ago, said Patrick Wallace, president of the San Francisco Better Business Bureau.

Complaints fall into two main categories: late fees and credit protection.

The latter is marketed as insurance for people who fear they may lose their jobs or be unable to keep up payments for some reason. Providian would freeze the account for up to 12 months, suspending billing and interest charges.

Credit protection is automatically added to some of Providian's card products, causing confusion among consumers who are billed for it but did not request it. Solicitations for these products generally say "credit protection included" or "automatic credit protection." The charge for the service is stated in small print.

Sen. Gramm's appeal to the OCC about a month ago included a request to scrutinize card issuers' disclosures of credit protection fees and their ilk. He also asked the national bank regulator to determine if lenders are delaying payment postings.

"A review is under way," said Janis Smith, spokeswoman for the Comptroller's Office. A reply to Sen. Gramm is due soon, she said.

Mr. Smith of Mayer, Brown & Platt said Congress' interest in card fees seemed to be part of a quid pro quo.

"The credit card companies have been up on Capitol Hill for some time urging changes in bankruptcy law," he said. "The price for even a modicum of congressional support is to hold the card companies to ever-increasing scrutiny about other practices."

Securities analysts are giving Providian the benefit of the doubt.

Michael Granger of Fox-Pitt Kelton said he viewed the lawsuits as a case of "law firms taking advantage of a media story."

According to the Better Business Bureau, Providian generates nearly twice as many credit card complaints as Citigroup or MBNA Corp. But analysts say this is not surprising, as Providian targets many people who have little experience with credit or damaged credit records.

"I do not believe Providian has violated any laws," said Mark Alpert, an analyst at Deutsche Alex. Brown. "At worst, this could be a case of misleading advertising."

Mr. Wallace of the Better Business Bureau said a "good number of the complainants are not sophisticated people," who therefore may not have understood the terms to which they agreed.

Consumer advocates are angry.

Edmund Mierzwinski, consumer program director of United States Public Interest Research Group in Washington, called the alleged lender practices "deliberate. . . . I am convinced that in some cases, bills received are not posted on the same day."

One consumer who documented his experience in print is Steve McNamara, editor and publisher of the Pacific Sun, a weekly paper in Mill Valley, Calif.

Mr. McNamara, a customer of Chevy Chase Bank, said he incurred three $29 late fees. The first two were waived after he called the issuer to complain. The third time-when he had sent in a payment two weeks before the due date-Mr. McNamara was told that the fee would not be reversed. (Chevy Chase's card portfolio was bought by First USA in September).

Mr. McNamara said the late fees stopped after he began sending his checks by certified mail. After his articles appeared, he received a dozen letters from readers saying they had had similar experiences.

First USA recently mailed its customers a primer on how to avoid late fees. "Sometimes even the most organized people make mistakes," states the pamphlet, which was sent separately from credit card statements.

First USA suggested that customers could request a new payment date, sign up for a free e-mail reminder service, or sign up for "auto-payment," automatically debiting a checking account in timely fashion.

David Webster, a First USA spokesman, said the pamphlet had been "in the works" for a while and was not a result of Sen. Gramm's letter to the OCC or any other event.

In April, First USA was sued in U.S. District Court for the Northern District of Texas by several consumers seeking class-action status. The bank was accused of systematically delaying payment processing so it can charge late fees and bump up interest rates.

Britton D. Monts, the attorney who filed the complaint, gave American Banker a form letter that First USA is sending to some customers, saying First USA may have "inadvertently" posted a late fee to cardholder accounts between November 1998 and March 1999. First USA said it would refund the fees and lower any interest rates that were raised as a result.

"To our knowledge, all our dealings with cardmembers in this area have been absolutely appropriate," said Mr. Webster of First USA. "We believe our service is the best in this industry."

Providian has been equally vigorous in its defense, issuing at least three press releases in response to accusations and reports.

"We are reviewing all customer offers to insure that they are clear from a customer's perspective," said one statement. "Given the concerns that have been expressed in the media and by others, we are taking ... special actions to reinforce (the Providian customer) guarantee."

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