Subprime credit business fueled Sanford's wealth

T. Denny Sanford amassed his fortune by selling last-ditch credit cards to consumers with bad credit.

The philanthropist who has poured millions into Sanford Health is known in banking circles for the billions he made with his South Dakota companies First Premier Bank and Premier Bankcard, one of the largest subprime credit card operations in the country.

Now, as Minnesota Attorney General Lori Swanson looks into merger talks between Sanford Health and Fairview Health Services, some are asking whether Sanford's background should be part of the debate.

"When I saw that Lori Swanson wanted to open this up, I knew this would come up right away," said Doug Cummings, director of East River Legal Services in Sioux Falls.

When contacted about Sanford's business career, Swanson declined to comment.

Although he doesn't have a position at Sanford Health, the banker and gift-giver has contributed more than $600 million to the health system that bears his name, a network that has spread across the Upper Midwest through a series of acquisitions. The University of Minnesota, whose medical center is run by Fairview, has also offered to take over the hospital group, a move that would pre-empt a Sanford deal.

Swanson has questioned whether ceding control of the medical center, a celebrated teaching and research hospital, to an out-of-state owner is in Minnesota's best interests. Others question Sanford Health's enduring ties to a businessman who made billions in an industry some consumer advocates view as a notch above predatory payday loans.

In an interview with the Star Tribune, Denny Sanford said his banking business isn't relevant to the merger talks. The medical nonprofit may bear his name, he noted, but he is not a Sanford Health executive, nor does he sit on its board of trustees.

"I strategize with them in long-term finance, but that's all," Sanford said, calling a public hearing Swanson will hold Sunday a "nonevent."

Sanford, a native of St. Paul and University of Minnesota alumnus, began giving money to health care organizations years ago. In 2007 he gave $400 million to the Sioux Valley Health System, which changed its name to Sanford Health. Today, Sanford Health has 35 medical centers and more than 100 clinics and is developing clinics in Ghana and Mexico.

Fairview Health is a Minnesota charitable trust that has existed for a century. Last year, it was beset with controversy over what some called exploitative debt collection practices, which included hounding patients who were still in the emergency room.

Chi Chi Wu, a lawyer at the National Consumer Law Center in Boston, said partnering with a company whose key benefactor made his money "gouging" vulnerable low income consumers is a questionable choice in light of that incident.

"All of these connections would make me very nervous if I was a Minnesota health care consumer," Wu said.

In banking circles, ­Sanford is regarded as a pioneering player in subprime credit cards, generally defined as revolving debt for people with FICO scores less than 600-660.

"We help people restore their credit. How can you find fault with that?" Sanford said. "We've done it with millions of our customers. They are so appreciative that someone will give them a chance to restore their credit."

But critics question at what cost. CardHub.com last year singled out one of Sanford's products, the First Premier Bank Gold Credit Card, as the worst of the credit-repair cards.

The card, featured on First Premier's home page, offers a credit line of $300 with an interest rate of 36 percent, an upfront processing fee of $95 before the account is opened, a $75 annual fee that drops to $45 after the first year, a $6.25 monthly fee after the first year, late fees up to $35 and a fee every time the credit limit is increased equaling 25 percent of the increase.

CardHub.com CEO Odysseas Papadimitriou called it a "horrible product."

In court documents in 2011, the two Premier companies said their default rate was 40 percent. When asked whether such a high default rate indicated worsening, not repairing credit, Sanford said the default rate is significantly lower now.

"Some people don't change their habits," he said.

Sanford's Premier Bank was an early player in the credit card scene that burgeoned in South Dakota after 1980, when the prairie state ditched its usury law on interest rates to land Citibank's credit card operations.

Sanford started with cards that were completely secured by upfront payments from cardholders. Then, he said, in 1995 he blazed the trail for unsecured credit cards for the credit impaired.

"We were the first, in the unsecured," Sanford said.

Business took off and Sanford rose to No. 135 on Forbes' list of the 400 richest Americans in 2007, with an estimated net worth then of $2.8 billion.

Sanford, 77, remains director, president and 92 percent owner of United National Corp., the Sioux Falls holding company for First Premier Bank and sister non-bank company Premier Bankcard LLC. He is still chairman of the two Premier companies, regulatory filings show.

Curt Everson, president of the South Dakota Bankers Association, called Sanford an astute businessman with a reputation for hiring very good people. The Premier companies are great corporate citizens, he said.

"The credit card lending business is not a business for the faint of heart," Everson said.

Consumer advocates have long assailed the subprime card industry for preying on financially vulnerable and unsophisticated people who can't get credit elsewhere. Premier, considered an aggressive player, provokes particular ire.

In 2007, First Premier Bank agreed to pay $4.5 million in refunds to settle accusations by New York's attorney general that it was deceptively marketing its cards. It settled without acknowledging any wrongdoing.

The Credit Card Accountability Responsibility and Disclosure Act of 2009 hammered Premier. Among other things, the 2009 law limited the fees that can be charged during the customer's first year to 25 percent of the credit card's limit.

Many subprime card issuers boosted interest rates in response to the limitation on fees, and First Premier gained notoriety a few years ago by experimenting with a 79.9 percent interest rate. That lasted only a while, experts said, though Premier now charges 36 percent interest on several of its cards.

"It's still an eye-popping rate, relatively speaking," said Curtis Arnold, founder of Card Ratings.com. "We've never been a fan of theirs, and we always rated them real low."

Jennifer Bjorhus • 612-673-4683