Shares of credit card company Providian Financial (NYSE: PVN) plunged to a new low in early trading after reporting that third-quarter net income fell 75% as a result of bad loans and higher loss provisions. In addition, Chariman Shailesh Mehta has resigned.

The company, which issues credit cards mainly to riskier subprime borrowers, has seen its stock lose nearly 90% of its value this year as the economy has slowed and its chargeoff rates soared.

The company's claim to fame has been fast growth. Even in a tough environment it grew total accounts 23% to 18.5 million and managed loans 31% to $32.2 billion in the third quarter. New accounts and managed loans (receivables) are the two levers that drive net-interest and non-interest income (revenues) at credit card companies like Providian.

But fast growth in the financial services business is a lot less important than managing risk intelligently, and Providian's net credit loss rate for Q3 reached 10.33%, up almost three full percentage points from 7.61% a year ago. Considering that the industry average is about 6%, Providian is off the charts, even for a subprime lender. The 2.7% increase represents nearly $900 million in bad loans.

Providian expects credit losses to get worse before they get better. Net credit losses are expected to exceed 12% in the fourth quarter. Unsurprisingly, the company is working furiously to better manage its loan portfolio. Actions being taken include suspending lending to some of its highest-risk customers.

Of course, this means growth will slow, and the company said as much. These are the steps that must be taken if the company wants to right the ship. 

Richard McCaffery doesn't own shares of Providian. The Motley Fool is investors writing for investors.