Case study management practices and approaches

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In what ways has Providian been unethical and socially irresponsible?

There are many examples for the unethical and socially irresponsible behavior of Providian. Firstly, they used the mathematical model for finding the ideal customer, and that ideal customer would be the person who cared more for a monthly smaller amount than an overall higher cost.

Moreover, that customer was "the best of the bad," that is risky customers with a spotty credit histories. They based their profits on offering credit cards to customers with a low income and charging them incredible "rates and fees to reimburse for the possibility of a loan default."

Thirdly, when advertising for their products, Providian left out some important aspects such as application fees or interest rates that reached even 24%.

Furthermore, Providian would not give credit cards to people who would refuse to cash the Providian checks (when cashed, the interest fee was charged to the customer).

Even more, when consumer protection's advocates came and blamed Providian for being socially irresponsible, the chairman Shailesh J. Mehta said that the company was not doing anything illegal, but on the contrary, it was giving out credits to customers who were insoluble to other credit cards companies or banks.

What argument can u present that Providian has been socially responsible?

The social responsibility has been somewhat present in the Providian example too, basically in the fact that the company agreed to settle the San Francisco lawsuit. Instead of going to court, and accepting their part of the blame, Providian considered it safer, and even more social responsible of them, to pay $300 million to settle to the San Francisco district attorney in the lawsuit accusing the company of misleading and deceiving its customers with less-than-candid marketing.

Moreover, in 2001, Providian decided to stop advertising the 800 numbers in order for customers to call and apply for a credit card and decided to run a campaign which advertised a web site that offered cards with high rates.

Furthermore, since 2004 due to the new legislation and to the new CEO and chairman Joseph Saunders, Providian is increasing its social responsibility focusing on the middle market rather than on the risky one, even if that means a lower default rate. What's more, Providian sold off some of the best loans to other financial companies and attained other funding.

What could company leadership have done to guide Providian in a better direction?

The company should have raised its market standard and focus on middle market rather than on insoluble customers, who almost brought Providian's bankruptcy. It should have advertised their products correctly and explicitly, this way avoiding the lawsuits and bad commercial. It might have not had the same market share at first, but, as risky customers accept overall high rates for monthly smaller amounts to be paid, in the end they would have had no other choice but accepting Providian's terms.