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Providian: A creditor's perspective
Visa credit cards.
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TEXT OF STORY
Steve Chiotakis: To some people, Providian Financial offered financial freedom.
To others, the company was a ticket to chronic debt. Providian was the first company to open up the credit card
business to lower-income, high-risk customers.
Shailesh Mehta was Providian's CEO for more than a dozen years. He's never spoken to the press about the company, but he agreed to talk with reporter Lowell Bergman for a "Frontline" documentary airing tonight on PBS.
Providian TV Ad: I got a Visa Gold with a $1,000 credit line. People treat you differently when you have a gold card. And with Providian, my credit just keeps getting better. Visa from Providian: We approve.
Lowell Bergman: Providian targeted riskier customers who had never before qualified for a credit card. Shailesh Mehta, the former CEO, says his goal was to provide all Americans with a credit card. In fact, as far as he was concerned, those least able to pay off their balance were the best customers.
Bergman: So what you were going after were the people who weren't going to pay their bill off in full.
Shailesh Mehta: In full, yeah. If we do so, then we will be attracting the profitable segment of the credit card industry.
Bergman: Your hope was to keep them paying basically in perpetuity, right? You never wanted them to really pay it off.
Mehta: Yeah. If they make the minimum payment, yes, then that loan will take almost 20 years to pay back. Absolutely.
Bergman: And you make more money then.
Mehta: We make more money.
Providian developed an array of tactics to lure customers, such as so-called "free" cards. These had no annual fee, but came with all kinds of "stealth" charges attached.
Mehta: When people make the buying decision, they don't look at the penalty fees, because they never believe they'll be late. They never believe they'll be over-limit. Right? So everybody increased the late fees. Everybody started increasing the over limit fees.
Last may, congress passed legislation intended to end practices that deceive customers. But the new rules don't take effect until February -- nd then, Mehta says, card companies will find a way around them.
Metha: Bankers will figure it out to comply. As long as I'm in compliance with what the government says, it's none of anybody's business to tell me what to do. You know, and there are always some desperate people who will take the product. Lending money to people is never a difficult exercise, OK. People will take money if you're willing to give them.
Mehta's no longer with Providian, but he's still pushing plastic. He's investing in the booming credit card industry in India. And here in America, he's shifted his attention to what he reckons is the next big thing: pre-paid debit cards.
I'm Lowell Bergman for Marketplace.
I locked in a 3.9% rate for life of loan from Providian back in 2004. I set up automatic payments and cut up the card. I moved $10,000 of a 7.9% car loan to the low rate card and never looked back. The key was automatic payments. No late fees. They did make it quite hard to set up automatic payments though. You had to send a written letter via snail mail and pay through mail until it kicked in. As long as you read the fine print it works out, but lots of room for mistakes that lead to a 30% rate.
The reporter's comment about "deceptive" practices in "Providian: A creditor's perspective" was an inappropriate and midleading editorial comment unsupported by the data adduced by the reporter. In context, Mr. Mehta suggested that borrowers failed to recognize the likelihood that they themselves would make late payments or only make minimum payments. Nothing suggested that consumers had been deceived.
