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.
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.
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