Providian in Talks Over Sales Tactics

Providian Financial Corp., which issues cards to consumers with tarnished credit, said Tuesday that it is close to reaching a settlement with regulators and law enforcement agencies over its sales and marketing tactics.

The sixth-largest U.S. credit card issuer said it’s in talks with the San Francisco district attorney and the Office of the Comptroller of the Currency to settle charges it allegedly misled customers about rates and fees, changed rates without notice and delayed posting payments to accounts to generate late fees.

Analysts expect fines and penalties of about $270 million after Providian said its second-quarter earnings will be two-thirds lower than expected if it settles by month’s end. The company estimates earnings per share of between 39 cents and 44 cents. It was expected to post $1.25 a share, according to a First Call/Thomson Financial survey.

“If the OCC is in there, the hope is they will speak for other states that had an interest at one time to pursue legal action,” said John McDonald, an analyst at UBS Warburg in New York, who estimates the settlement may be $270 million, or $1.12 a share, based on the company’s earnings outlook.

“The dollar amount looks to be higher than what people were expecting, but the silver lining is that it’s high enough to be viewed as final,” McDonald said.

On Monday, Providian agreed to pay $1.6 million to settle consumer complaints in Connecticut after an eight-month probe by the state’s attorney general. The company also agreed to make restitution to cardholders hit with improper late fees and other charges.

Its stock fell 31 cents to close at $93.41 on the New York Stock Exchange, erasing an earlier $5.09 gain, on concern over the outcome of several other private lawsuits being pressed by consumers.

Seven consumer lawsuits were consolidated in federal court in Philadelphia in October. They’re separate from the regulatory and enforcement agency investigations.

Providian, the OCC and the San Francisco district attorney’s office declined to comment on the possible settlement. Alan Elias, a Providian spokesman, would only say discussions with the agencies are ongoing.

For the year, Providian expects earnings between $4.24 and $4.34 a share--down from the $5.20 analysts were expecting. Without charges arising from the expected settlement, net income would have been between $5.10 and $5.20 a share.