Providian Financial Corp.'s recent run-in with the Office of the Comptroller of the Currency will not likely have an effect on the outstanding asset-backed securities, though the terms of the settlement have yet to be disclosed or finalized, according to market sources.
Regardless, the incident is another example of regulators cutting down on alleged abuses in consumer lending. The OCC declined to comment, as they've yet to issue an official statement on the matter.
"The settlement discussions have absolutely nothing to do with predatory lending," said Alan Elias, vice president of corporate communications at Providian.
Another source familiar with the settlement said the settlement addresses sales and marketing practices, and not lending practices.
According to The San Francisco Chronicle, Providian is likely to dish out $300 million to appease charges of fraudulent activities.
Like the similar problems in the subprime residential sector, Providian's alleged abuses are associated with disclosure laws, however, unlike the home-equity shops, Providian's troubles seem to be associated with its middle income, prime borrowers, whose loans make up the Platinum card portfolio, according to a press release the company issued last week.
"The interesting thing about it is that it's not a subprime issue," said a source familiar with the situation. "It's prime borrowers, by in large. It's not a predatory lending issue."
However, the source said, the investigation by the OCC would not likely have taken place if there hadn't been complaints filed against Providian by subprime borrowers.
As for the bonds, even though they are backed by Providian's middle income customers, where the questionable practices are said to be taking place, the cash flow is not likely to be disturbed, sources said.
"I think the issues have to do with the disclosures on the statements themselves," said Edward Bankole, a managing director at Moody's Investors Service. "To date nobody has indicated that that would have any impact on the securitized pools."
Bankole explained the owner of the accounts, in this case Providian, would be responsible, and that Providian has indicated that it has the financial capability to withstand the settlement.
"Because the discussions with the OCC and the San Francisco state examiners have not been publicly disclosed, it's hard to tell where this will end up," Bankole said. "But from what has been disclosed to date, I don't expect any impact on the securitized pools."
Separately, last week Associates First Capital and Wells Fargo both officially became members of the "questionable lending practices" brigade.
According to published reports, Associates will likely be named a defendant in a civil lawsuit charging the lender with discriminating activities - namely, charging higher interest rates on loans to blacks than on loans to whites.
Acorn, or the Activist Coalition for Reform Now, has filed a lawsuit against Wells Fargo for its web site feature called "Community Calculator," which allegedly traffics prospective home buyers to their respective ethnic neighborhoods.
