Tuesday, May 12, 2009

Advanta Shuts Down Credit-Card Lending Amid Surging Charge-Offs


Beginning next month, Advanta credit-card customers will no longer be able to use their credit cards to make purchases. The card issuer says that customers will be able to pay their existing balances over time. The halt in credit-card lending, which takes place on June 10, will affect some 1 million customers.

From Bloomberg:

Advanta has reported three consecutive quarterly losses and has seen its shares plunge from about $30 in June 2007 to $1.13 at the close of New York trading yesterday. The U.S. jobless rate reached 8.5 percent in March, a 25-year high, squeezing sales for small business owners. The economic slowdown affected Advanta’s customers across the country, Chief Financial Officer Philip Browne has said.

“We’ll be shutting down accounts for future transaction activities, but many of the customers will maintain balances and pay us off over time,” Browne said yesterday in a telephone interview. “We’ll have to service and collect on that, and that will be the first order of business for the company.”

Desperate times call for desperate measures. Advanta hopes the halt in lending is temporary. However, my prediction is that Advanta will not survive. The card issuer caters to small-biz owners. Small business has been ripped during this economic downturn. Still, Advanta's business tactics likely didn't help matters either.

The company reported a charge-off rate of 20% back in March. Given the card issuer's penchant for hiking rates to 30%+ on customers who are in good standing -- and who have not missed any payments -- it's not surprising that Advanta is now getting killed.

You reap what you sow.

Read the full story here.

40 comments:

  1. Advanta Corp. suspends credit cards

    http://www.philly.com/inquirer/front_page/20090512_Advanta_Corp__suspends_credit_cards.html

    ReplyDelete
  2. Others issuers (B of A, Citi) beware. Though much larger institutions, your strong arm tactics are similar.

    You too are not too big to fail in the credit card lending arena.

    ReplyDelete
  3. Enigma, there can be little doubt that Advanta's tactics contributed to small-biz owners defaulting on their card obligations. I've heard from many customers who saw their interest rates soar to 35%. These were not deadbeat customers who were no longer paying their bills, either.

    ReplyDelete
  4. Exactly, Drewbert. Dang. I feel bad for them.

    ReplyDelete
  5. The guy who runs the Mortgage Implode-o-meter should start a site for credit card companies.

    ReplyDelete
  6. Yeah I never really understood how a single missed payment that results in a 35% interest rate benefits the issuer.

    If that were my case, a rate increase of that magnitude would only hasten my trek to the bankruptcy court. Though I assume that these lenders have some sort of statistical data showing that the increased bankruptcy rates that surely follow a huge rate jack are offset by those that just grit their teeth and bear it.

    ReplyDelete
  7. Enigma, in Advanta's case it was lifting rates to 35% on customers who had NOT missed any payments. I know customers who stopped using their cards at that point -- just out of principle.

    ReplyDelete
  8. Good riddance. For me, they were the first to jack my rate due to "economic conditions." From a useful 8% to 30% for no reason.

    ReplyDelete
  9. At this point, I think you're going to see this happening more and more at the edges of the credit card industry. 20%+ default rates are pretty darn incredible, I think that the lesson is pretty clear that if your customers are on the edge, you can push them off or you can help them out. Short term pain for the card issuer could turn into long term gain if only they would see more than the next quarter.

    ReplyDelete
  10. BD, I think it's one thing to lift rates to, say, 15% -- for economic reasons. But to 30%? Ha!

    ReplyDelete
  11. If they did this to current customers, that is even more bewildering. There can be NO statistical data showing that this is a good idea :)

    Hope B of A is next! (to get out of credit card lending that is) :)

    ReplyDelete
  12. Martin, exactly. It's one thing to cherry pick some customers who will get 30% rates. But when you do it across the board? See Advanta.

    ReplyDelete
  13. The Advanta business model:

    1 - Load gun
    2 - Aim carefully
    3 - Shoot self in foot
    4 - Reload weapon
    5 - Aim at other foot
    6 - Fire

    And then they wonder why they can't keep standing.

    ReplyDelete
  14. I just checked my Advanta statement. I'm at a 7.99 APR for purchases (29.99% for cash advances).

    ReplyDelete
  15. FLT, have you had the card less than a year?

    ReplyDelete
  16. I have had my Advanta account for over three years and never had a problem, only using for promotional balance transfers at 6.99%, which I am still enjoying. Never have used the card, however, just for balance transfers. I for one will miss them.
    ~Don

    ReplyDelete
  17. I received the card last August when I went on my App Spree last September.

    ReplyDelete
  18. It's my understanding that most of the people who got those nice rate jacks were cardmembers for at least a year. I am sure there are exceptions, but most of the people I've heard from had the card at least a year.

    Don has had his card for more than three years. No problems with his card, though.

    ReplyDelete
  19. That made no sense. I would like to edit it to read: "I've had my Advanta card since September 2008, the month I went on my App spree."

    ReplyDelete
  20. I'm disappointed bc they gave me the highest CL I've seen reported (over 40K) and it would have been useful for my business.

    But this is not unexpected- it's been widely predicted that Advanta would fail.

    ReplyDelete
  21. In today's mail a letter from Advanta Re: "3.99% non-variable APR --good until January 2010--when you use the special Account Checks attached by June 15th, 2009 up to your $30K limit." I would be reluctant to use, however, since might bounce.
    Also, there is a 4% fee (no max).
    ~Don

    ReplyDelete
  22. Don, why would it bounce? And yikes on that 4% and no cap.

    I just got an offer from Merrill. BT at 3.99% -- with $75 cap. Some decent offers still exist (but not a lot).

    ReplyDelete
  23. No loss here. Their reward scheme was changed from lousy to pitiful a few years back. Stopped using the card except for the quarterly ~$20 spend to keep the account open.

    ReplyDelete
  24. Speaking of reward schemes, all you Chase Freedom card holders, be watching your mail...

    ReplyDelete
  25. Enigma, I wrote this in the OT thread:

    I have not received my notification in the mail yet, but I know it's coming. Chase Freedom will officially be a run-of-the-mill rewards card not worth carrying. I have other cards that do what Chase Freedom will be doing beginning June 30.

    http://creditboards.com/forums/index.php?showtopic=394873

    ReplyDelete
  26. I had my Advanta card for four years before they pulled their stunt. It was a nice place to park debt in the mid-term, since the interest rate was at 8%. When they jacked me I balance transferred to Chase at 5%. Chase is my last good card company, but their rates are still high.

    ReplyDelete
  27. BD, and if the Chase Freedom move is any indication, you'll likely have to throw Chase into the pile with the rest of them.

    I pointed to this story earlier (in OT thread):

    New Fees for Card Usage Abroad

    http://online.wsj.com/article/SB124209087226709139.html

    ReplyDelete
  28. Re: "... balance transferred to Chase at 5%. Chase is my last good card company ..."

    Black Diamond, do not trust Chase, ESPECIALLY with a balance transfer.

    They have invented a theory that they can unilaterally change your rate and your payment, at any time, and NOT allow you to opt out of the changes-- even on a balance transfer that had a PERMANENTLY FIXED rate!

    http://www.msnbc.msn.com/id/30111663/
    http://www.msnbc.msn.com/id/30111663/page/2/

    As far as I know, none of the other banks have attempted anything like this... yet.

    ReplyDelete
  29. "but I know it's coming. Chase Freedom will officially be a run-of-the-mill rewards card not worth carrying."

    I've been saying this here for months. They will all be run-of-the-mill rewards cards, one by one they will all change their policies as they need to move away from interest income and rely on fees.

    This is why the customer service aspect of these changes does not matter, everyone at some point is going to have to change their policies. Same goes with rate hikes, limit cuts etc.

    Its rather amusing watching the credit junkies react though.

    ReplyDelete
  30. Closed my account today. I only ever it for a 0% BT offer. By the time I paid it off, my new purchase rate had spiked close to 30% and eventually settled on a mellow 24.99%. You know things are bad when you look at the yields on their investment notes: https://vault.advanta.com/prospectus.asp#NoteRate

    ReplyDelete
  31. I received my last reward check for $51 in April and have racked up another $5200 in charges since then. I'm not going to get another rebate check am I? I'll have to start using another rewards card and put the Advanta card in the heap of other unused cards. I've never paid Advanta one cent in interest or other charges... they must hate customers like me.

    ReplyDelete
  32. Just elarned that Advanta cut my limit from $2,500 (my lowest limit of 10 cards) to $500. No big loss, but I thought it was odd if they are closing it next month anyway.

    ReplyDelete
  33. "learned" - not "elarned"

    ReplyDelete
  34. FLT, no big deal. Since no one will be able to make purchases on their Advanta cards after June 12 or whatever date it is.

    No loss.

    ReplyDelete
  35. Interesting - On May 12 I learned here at Credit Matters Blog that my Advanta card would be closed.

    Today, May 26, Advanta notifies me by email.

    And the last day to charge will be Friday, May 29.

    Here's the meat of the email:

    Effective May 30th all Advanta Business Credit Card accounts, including your account, will be closed. This is because Advanta Business Card accounts are generally funded by an independent trust which owns the balances owed on the accounts and provides funding for new transactions and we expect the trust to stop funding activity on our accounts. The trust also restricts our flexibility to fund account activity.

    This means that you will not be able to use your card or account for new transactions, including purchases, checks and balance transfers beginning on May 30th. We understand that you may have written checks on your account before May 30th and we will make every effort to honor those checks that are presented to us for payment by June 3rd. If you use your Advanta card to make automatic recurring bill payments, you will need to make alternative arrangements for those payments promptly.

    It is important to understand that you are not required to pay your entire balance at this time. You may continue to pay down your account balance over time, as allowed under your Advanta Business Card Agreement.

    We have also reduced the credit line on your account to the amount of your current outstanding balance plus $500 effective immediately. We will send you additional information about why we have taken this action in another letter.

    You will not lose the rewards that you have earned. If you participate in a Cash Back program, you will receive a check for the amount of any accrued rewards more than $1.00 as long as you make the required minimum payments and your account remains in good standing. If you participate in a Business Rewards program, you will have at least 60 days to redeem your points as long as you make the required minimum payments and your account remains in good standing.

    We deeply regret the impact this action will have on your business and very much wish it was not necessary.

    ReplyDelete
  36. Advanta is finally getting what's coming to them. All the hundreds of us small business owners who did nothing wrong but be a good Advanta customer and had our interest rates jacked from 30-44%, will be partying as soon as we see Advanta go down in flames. Their account holders are refusing to give in and pay their loan shark rates is why their default rate is skyrocketing. Poor Mr. Alter is a wolf in sheep's clothing. We will be more than happy to see his empire crumble.

    ReplyDelete
  37. I would be interested so hear comments about the adverse FICO hit consumers bare when cardholders reduce their limits or close accounts altogether. Working in the mortgage biz, I still see score issues caused by creditors/lenders that directly impact cardholders for circumstances beyond their control.

    ReplyDelete