In the year since Providian Financial Corp. came under legal scrutiny for its fee policies, the credit card company has learned the hard way that it has been insensitive to its customers.

The mea culpas have been flying thick and fast since last May, when it first came to light that the San Francisco District Attorney's Office had begun investigating Providian's policies, including how it imposed late fees. Six shareholder and consumer lawsuits against Providian followed, as did an investigation by the Connecticut Attorney General's Office.

Before the problems escalated "we didn't realize that customers were unhappy," said Shailesh Mehta, Providian's chief executive officer. Since Providian used to waive late fees - sometimes twice - for each customer who complained, senior management did not know that disgruntled cardholders were busy calling lawmakers and consumer groups, Mr. Mehta said.

He said the rise in complaints coincided with a period of rapid growth at Providian, the country's eighth-largest card issuer, which adds 20,000 customers and seven employees a day. In one policy change that emerged from the fracas, Providian's 12 million cardholders now have a two-day grace period beyond the due date in which to pay their bills without incurring a late fee.

Mr. Mehta said the grace period has cost Providian "some revenue," but it increased customer retention rates. "Customer satisfaction is not a competitive advantage anymore - it is a baseline strategy," he said.

Providian's blind eye to mounting customer unrest may serve as a cautionary tale for other card companies. Similar problems at Bank One Corp.'s First USA unit led to large-scale customer defections, which in turn toppled the management of both the bank and its credit card division. Bank One has been forced to scale back its earnings expectations, and has attributed its misfortunes to the turmoil at First USA.

Providian says it has cleaned up its act. Last year it issued "the Providian guarantee" in which it vowed to cancel unwanted product add-ons, and to refund fees that customers considered unfair. All customer service representatives were directed to end phone conversations by asking, "Are you satisfied?"

It also hired two high-profile fence-menders, both former officials at the Office of the Comptroller of the Currency. Konrad Alt, senior vice president and chief public policy officer, says his job - a new one for Providian - is "reputation risk management." At the OCC he was deputy comptroller for economic analysis and public affairs.

Mr. Alt said he is focused on developing "world-class customer service," and said Providian's "public image will take care of itself" after customer service issues have been resolved.

Another recent hire, Chris Lewis, is in charge of guiding Providian's relationships with consumer organizations. A vice president who reports to Mr. Alt, Mr. Lewis was most recently a senior adviser to the comptroller at the OCC. Earlier in his career he was director of financial services and housing for the Consumer Federation of America, a Washington, D.C., nonprofit that loudly criticizes Providian's business practices.

Providian says the number of customers who write letters of complaint to the Better Business Bureau has declined, but Patrick Wallace, president of the San Francisco Better Business Bureau, says that is not so. His office tracks the complaints from around the country, and he says 161 have come in so far this year, in line with the 668 lodged in 1999.

Mr. Wallace said Providian generated about 50 complaints a month last year, and "this year they are pedaling along at the same rate."

Mr. Alt said those numbers do not square with Providian's records. He said Providian sends a letter to Mr. Wallace every week, detailing a log of complaints Providian gets from Mr. Wallace's office. "He has never sent us a single correction," Mr. Alt said, and he suggested there is a discrepancy because "Mr. Wallace keeps a lot of complaints on his log that have been resolved."

Linda Sherry, editor of a newsletter put out by a San Francisco nonprofit called Consumer Action, has been impressed by Providian's efforts. "There is no question the company has really tried to clean up its act in terms of how it talks to customers," she said. Providian recently made its first contribution to Consumer Action: a $50,000 grant for the group's Healthy Children Organizing Project.

Ken McEldowney, executive director of Consumer Action, met with Mr. Mehta last month. Ms. Sherry toured Providian's central processing center, where customer service representatives handle telephone queries and complaints.

Mr. Alt said these meetings "build goodwill and are important in avoiding missteps." Mr. McEldowney said it was too early to say whether Providian is making substantive changes.

Stephen Brobeck, executive director of the Consumer Federation of America, said he agreed to meet with Mr. Mehta as a courtesy to his former colleague, Providian's Mr. Lewis. Mr. Brobeck said he is still "troubled by Providian's aggressive marketing to lower-income households."

Despite Providian's new policies and spin doctors, the company is still mired in legal battles. The investigations by officials in San Francisco and Connecticut are still pending, and may lead to a large financial settlement.

In the meantime, Mr. Alt's former employer, the OCC, is also scrutinizing the large number of complaints - 1,646 in 1999 - that Providian's customers have filed with the regulator.

Janis Smith, an OCC spokeswoman, said Providian is not the only credit card bank under close watch. First USA generated 7,206 consumer complaints in 1999. In both cases, Ms. Smith said, most complaints are from people who say they mailed payments on time but were charged a late fee.

Consumers also fault Providian with deceptive marketing practices, Ms. Smith said. Some customers said Providian billed them for credit insurance they had not knowingly purchased.

According to a March 9 article in the San Francisco Chronicle, the San Francisco district attorney's office and officials at the OCC are exploring a joint settlement, and those talks have recently accelerated.

In the second quarter of 1999, Providian admitted that it had mistakenly charged late fees to some customers, and blamed the problem on a computer error. The company took a $20 million charge against earnings to repay customers.

The year's ordeal has served as a "wake-up call for Providian," said David Petrini, Providian's executive vice president and chief financial officer. At a speech in March to a Donaldson, Lufkin & Jenrette conference in New York, Mr. Petrini fielded questions about whether Providian has set aside reserves for a settlement with the San Francisco District Attorney's Office. He said Providian has reserves and is eager to settle the matter.

"The most likely outcome," he said, is paying "a penalty or restitution" to the customers who were affected. A settlement would likely involve improving the clarity of Providian's marketing materials and solicitations, Mr. Petrini said, so that customers understand what they are buying.

Chris Constanzo contributed to this article.

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