Advanta agreed to pay $35 million in restitution to small business cardholders who saw their APRs jacked up unfairly, in a settlement announced by the FDIC. The agreement also covers small business customers who signed up for cash-back rewards programs that made it "effectively impossible" for customers to get the advertised rewards.
Advanta, with more than a million small business credit card accounts, cut off all new lending to customers at the end of May after mounting losses. As part of its settlement with the FDIC, the credit card company also agreed to a cease and desist order. Advanta "did not admit or deny any liability" in the settlement. I've requested a comment from their spokeswoman, and will update if we get one. [See update below.]
Advanta has to pay restitution by September to eligible customers, defined in the order as:
(i) any Cash Back Accountholder who, during the period from January 17, 2004 to the effective date of this ORDER, applied for and received a Bank credit card in response to a written, web-based, or alternative media solicitation or advertisement for a Bank credit card that provided Cash Back Rewards, that did not contain the words "up to" preceding the Stated Cash Back Reward. ...
(ii) any Bank credit card accountholder whose credit card account was repriced ... from June 1, 2007 through 200S unless an accountholder exercised the opt-out right pursuant to the Bank's notice of change in terms. This includes existing Bank credit card accountholders and former Bank credit card accountholders of a credit card account that is now closed, charged off, or has been transferred by the Bank.
It's not clear how many customers that includes -- Advanta has to compile a list to notify. More coverage from Bloomberg. We'll update as we hear more. In the meantime, feel free to share your Advanta horror stories in comments.
Update: Advanta had no comment but referred its 8-K filing.
Also, the FDIC says that between July 2007 and January 2009 it received 976 complaints about Advanta's repricing of interest rates. That's not counting any complaints filed with the FTC or state regulators.
One of BusinessWeek's Most Promising Social Entrepreneur finalists: Daniel Lubetzky, whose PeaceWorks Foundation helps spur Middle East peace through business ventures between Arabs and Jews, just earned a big business coup for a small business owner. As part of Starbucks initiative to offer more healthy food along with its mochachino’s, latte’s and scones, the coffee chain recently began selling Lubeztky’s KIND bars. Lubetzky launched KIND Snacks five years ago as a for-profit venture that channels five-percent of its profits back into the PeaceWorks Foundation. The New York Times reports on how Lubetzky doggedly pursued Starbucks over the course of several years, two coasts, two continents, and a number of personnel changes at the Seattle coffee giant. It’s a great tale of entrepreneurial determination and one that should resonate with every small business owner looking to hook that big channel to distribute their products.
“This is such a huge break,” says Mr. Lubetzky, whose company generated about $15 million in revenue last year. “Now we just have to show we can make it work.”
I'd like to see a closer analysis of the trends in the past 10 years. There's been a fundamental shift in how people start businesses and the types of ventures they start in the last decade. Technology has lowered barriers to entry in many industries, and the Internet has opened up new markets. Scott writes about the Wal-Mart effect:
Large, efficient companies are able to out-compete small start-ups, replacing the independent businesses in many markets. Multiply across the entire economy the effect of a Wal-Mart replacing the independent restaurant, grocery store, clothing store, florist, etc., in a town, and you can see how we end up with a downward trend in entrepreneurship over time.
But there's a separate trend we could point to: The emergence of niche markets where many small players compete, without the dominance of a Wal-Mart-like giant, or even mass markets where niche players are gaining a foothold. For example, big brewers still control most of the U.S. beer market, but microbrews are growing faster: "In 1978 there were a total of 42 breweries in the U.S., including industrial breweries. Today there are 1,390 craft breweries, microbreweries, and brew pubs."
I can't argue with the entrepreneurship numbers. But as one of Scott's commenters points out, you get different trend lines depending on where you start counting. I think there could be an inflection point around the beginning of this decade that reflects growth of new types of ventures. Curious to hear more thoughts on this in comments or on Twitter.
Like most business owners, BusinessWeek reader Mike Draper is concerned about balancing his employees' health benefits with his business' expenses. In 2006, after paying out of pocket at a county hospital, he voiced his own sentiment by designing a shirt for his Des Moines, Iowa-based custom screen-printing company that reads: "America: Only the Insured Survive." His company, SMASH, which he expects to top $1 million in gross sales this year for the first time, pays 100% of the health insurance premiums for his seven employees working more than 30 hours a week. Right now, Draper says, "they're all unmarried 20-somethings, but in five years, when everyone needs family policies, we might be in a little bit of trouble."
On Wednesday, June 23, Draper got a chance to express his concern through more than just organic cotton. He testified in front of three government committees in Washington as a representative for the New Hampshire-based Main Street Alliance, a network of small-business coalitions in support of health care reform (he is not a member). Central to his testimony was Draper's support of a government-run public insurance option. "I'm not in the bag for one person or the other. I'm just there because I run the numbers and it's the only viable alternative for the future," he says. Health care coverage eats up between 6% and 24% of SMASH's yearly payroll costs, a commitment Drapers would love to lower, or at least stabilize. A bill, authored by the House Committees on Ways and Means, Energy and Commerce and Education and Labor, is kicking around the House and would require businesses to insure their workers or face a tax equal to 8% of their payroll. The tax would then be re-distributed back to employees who could then chose from private or public insurance options.
Another government levy, of course, isn't what attracts Draper to mandatory care and the public option plan. Instead, it's the consistent, flat rate that would give him some year-to-year budgeting peace of mind. Because, to add to what a former small-business owner once said, death and taxes are certain, but these days so are rising insurance premiums.
--------
Then we invite you to participate in a BusinessWeek special project. We're producing an online report this summer that will culminate in a double issue of our magazine in August that we're calling The Case for Optimism.
We're polling small business leaders, including our readers, for economic signs of life. The six most insightful reader submissions will appear in August's double issue. To read Mike Draper's comment and contribute your own indicators of an economic turnaround in your business or industry, visit our Case for Optimism blog.
I want to highlight a great comment that a reader, a former commercial banker named Sheila Spangler, left today on our story about rising business bankruptcies:
As a former commercial lender, I'm appalled that bankers are forcing small businesses into bankruptcy rather than doing a workout. Banks' balance sheets are "fragile" because [they] reduced credit standards to follow the crowd. The unwillingness to work out of problem situations is especially true of the large banks. The locally owned independent bankers are much more likely to work out payment arrangements with business owners. Probably because the decision-makers live in the community in which they serve. It's more difficult to be hard-hearted when your neighbor, club member or friend is requesting that you help him save his business. I am working with some business owners in this regard. In my prior life as a commercial banker, every one of the banks I worked for referred to themselves as a "relationship bank". Well, it is apparent that the "relationship" only works one way. That's NOT a relationship that anyone can be in successfully. Come on bankers, small business owners need you now more than ever. Don't follow the crowd like you've always done. We need bankers with the mental toughness and guts to take a stand and do what's right for business owners.
Banks -- especially the ones that took TARP funds -- have been in a bind since last fall. They're under pressure on one hand to increase the flow of credit to households and businesses, and on the other hand to reduce the risk on their books. It's easy to understand why banks would push to recover whatever they can immediately from small companies facing insolvency, considering the cost and time involved in doing workouts with companies that may not be viable in the long term. As Sheila points not, it's not relationship lending, it's simply looking at the numbers. The irony is that the companies filing bankruptcy right now are small enough to fail -- while many of their creditors, who have no patience for workouts, are only around because the government rescued them.
Virgin founder and Chairman Richard Branson visited BusinessWeek Wednesday to record an interview with Stacy Perman, based on some questions submitted by readers: Afterward, Branson joined BW staff for an...
By educating consumers about decent coffee, Starbucks made it possible for independent coffee shops to gain a foothold in communities across America. That's one thesis in Bryant Simon's new...
Just out from the Census: The U.S. added a million new non-employer businesses in 2007, for a total of 21.7 million. Together these businesses had sales of nearly $1 trillion...
I came across two takes this morning on industries where there are growth opportunities for entrepreneurs even in this recession. First, sometimes BusinessWeek columnist Tom Taulli over at BloggingStocks offers...
Whenever I write about business bankruptcies, I have to go back to this paper by Robert Lawless and Elizabeth Warren. Published in the California Law Review in 2005, it's called...
Customer loyalty is wobbling. The Wall Street Journal looks at how small companies have to court regular customers today. Businesses can't take loyalty for granted anymore. Among big U.S. brands,...
What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. The writers and editors from the Small Business team, Amy Barrett, Amy S. Choi, Colleen DeBaise, Nick Leiber, Stacy Perman, Jeremy Quittner, John Tozzi, and Kimberly Weisul, discuss the news, trends, and ideas that matter to small business owners.
Our ongoing series, Fresh, profiles standout startups before they become household names. Now we're adding videos of some of the featured entrepreneurs to the mix.
Study accredited UK postgraduate degrees Earn an industry focused accredited masters degree in 1 year full-time or 3 years online. Ranked 2nd in UK for employability by FT. Aberd...
Middle East peace through business ventures between Arabs and Jews, just earned a big business coup for a small business owner. As part of Starbucks initiative to offer more healthy food along with its mochachino’s, latte’s and scones, the coffee chain recently began selling Lubeztky’s KIND bars. Lubetzky launched KIND Snacks five years ago as a for-profit venture that channels five-percent of its profits back into the PeaceWorks Foundation. The New York 
Like most business owners, BusinessWeek reader Mike Draper is concerned about balancing his employees' health benefits with his business' expenses. In 2006, after paying out of pocket at a county hospital, he voiced his own sentiment by designing a 
