Washington Mutual Card Services
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Washington Mutual Card Services NYSE: [WM]
History
In the early 1980s Andrew Kahr founded a credit card company called First Deposit Corp.
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." Although the extended credit makes the borrower poorer than before the credit was extended, it had 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 $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 $4.7 million following his confirmation hearing and a short time before Providian's financial problems became public information and the stock price plummeted.
Settlement
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 consumer fraud.Providian underwent a tremendous business turnaround beginning in 2001 following the departure of the former management team and large credit losses following the recession of 2001. These losses lead to significant layoffs, trimming the company from 11,000 employees to 3,500. During the same period, the size of the credit portfolio and the number of accounts decreased significantly, as the new management team sold a large number of higher credit risk accounts and began a marketing program that reinvented the Company. Under the leadership of CEO Joe Saunders and his management team, the company has very successfully focused on attracting “mainstream” American customers, while dramatically reducing its credit losses.
Washington Mutual buys Providian
In October, 2005 Providian was sold to Washington Mutual for approximately $6.5 billion. Washington Mutual will run the company as a wholly owned subsidiary, continuing to operate out of its San Francisco headquarters. The company employs approximately 3,000 employees nationwide. Providian has significant operations in California, New Hampshire, and Texas. Providian is a company that sells credit in the "sub prime market." People in that market are those who can't get credit cards from the major companies. In general, these are people with low incomes and poor credit histories. As a result, the APR rates charged by Providian can be as high as 29.9 percent.Washington Mutual Card Services
Providian has been renamed Washington Mutual Card Services, and currently markets cards under the Providian and Washington Mutual brands, as well as issues co-brand and affinity cards entities including eBay, PayPal, HSN, HRC, and the Democratic National Committee. Washington Mutual Card Services currently has more than 10 million card holders and ranks as the ninth largest credit card issuer.
Providian is represented on Visa's U.S.A. board of directors.
References
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