Advanta Cuts Off Small Business Customers

Posted by: John Tozzi on May 12, 2009

Small business credit card issuer Advanta is shutting down all customer accounts on June 10 in an effort to shore up its finances amid steep losses, the company announced yesterday.

Advanta, which focuses exclusively on small business credit card lending, has more than 1 million accounts and customers charged $13 billion last year. Bloomberg reports that Advanta’s loss rate is 20% on some accounts. Advanta will use $1.4 billion to make cash offers at 65 to 75 cents on the dollar to investors in the securities backed by its credit card debt, the company said.

I have messages into Advanta to find out more on how this will affect small business cardholders, and we’ll update with what we hear.

Update: Advanta spokesperson Amy Holderer emailed the following statement in response to my questions:

The actions that we outlined in our press release yesterday are being taken as proactive steps designed to dramatically reduce future risk and to maximize our capital and our liquidity measures. With regard to our existing customers, our goal over the next month is to keep a balance between being useful to the small businesses and mitigating risk to us. Customers will be notified of changes to their card access at the appropriate time. We will not be accelerating payments required from our customers, and they can pay their outstanding balances according to their account terms. Advanta will continue to service and collect its receivables.

If you’re an Advanta customer, have you been informed yet? Have your rates gone up recently? And what are you planning to do when Advanta shuts down your account? Tell us in comments or on Twitter.

There was no love lost for Advanta by some readers in the comments thread on this story about small businesses increasingly relying on credit cards. Many readers reported that Advanta jacked their rates arbitrarily. For example, here’s what a reader Amy wrote last year:

I too am a small business owner who got caught up in the 0% introductory rate scam a year ago. After the introductory rate period expired my rate went up to 19% and has now been increased to 35.08% without an explanation. I owe about $4,800.00. I have never been late with my payments, I pay more than the minimum amount required each month, have excellent credit and have never exceeded my credit limit.

Incidentally, credit card reform legislation that would curb practices like arbitrary rate hikes is in the works in the Senate right now. The House version, passed two weeks ago, did not apply to small business credit cards like Advanta’s. There’s an amendment to the Senate version that would include small businesses with 50 or fewer employees, sponsored by Sens. Olympia Snowe (R-Maine) and Mary Landreiu (D-Louisiana). I’m told the amendment could be offered as soon as this afternoon.

(Hat tip to Planet Money and Calculated Risk.)

Reader Comments

Victor Cheng

May 13, 2009 2:11 AM

Who cares?

We have an Advanta corporate card. If they shut down the account, we'll just use a card for someone else.

Sure it's a little inconvenient to issue new cards, but I don't really see what all the fuss is about.

Laura

May 13, 2009 1:52 PM

Excellent! It's about time that Advanta feel the pinch! My fixed intro rate was 7.9% but then poof! up to 36.6% with no warning. If they would of treated their clients with respect maybe this wouldn't be happening!

Carole

May 13, 2009 2:31 PM

My story is exactly like Amy's. I too am a small business owner who got caught up in the 0% introductory rate scam a year ago. After the introductory rate period expired my rate went up to 19% and has now been increased to 35.08% without an explanation. I owe about $5,500.00. I have never been late with my payments, I pay more than the minimum amount required each month, have excellent credit and have never exceeded my credit limit. I received notice to opt out of the higher rate 5 days after opt out date. I say what goes around- comes around. Good Bye, Good Riddance Advanta!

Heidi

May 13, 2009 3:24 PM

I learned about the Advanta cutoff through NFIB, not Advanta. I think its safe to say this statement, "Customers will be notified of changes to their card access at the appropriate time." has expired. We are paying the same %15 interest rate we've been paying for over a year, but a notice before the press release would have been much less shocking. We're a little concerned who to get credit from now.

Sean

May 13, 2009 3:28 PM

Same story as others. Took the 7% and 8% cash advance offers, then the rate is jacked up to 34.99% for absolutely no reason.

I never have late payments or over the limit fees (I use automatic bank pay). Plus, my total household debt has been steadily declining for the last two years. Still, Advanta jacks the rate to 34.99% Meanwhile, my Citi business card is a 8% and my Amex business card is at 12%.

Good riddance to Advanta.

Jayme

May 13, 2009 3:55 PM

Advanta has notoriously had higher rates than other business cards. When I found that out, I quickly paid it off and never used it again until some great offer came and paid it off so they made no money. Fortunately, my overhead is smaller than other SMBs due to a service orientation; however, knowing I have a financial institution not playing games (like Chase), is helpful.

Jackie

May 13, 2009 4:16 PM

I too am a small biz. Same story as the rest. I have filed complaints with the FTC and members of Congress. NOBODY CARES!! It is "legal loansharking." If we all did the same thing we'd be in jail. The bigger joke, our tax dollars are paying for this mess. Glad to hear Advanta is getting some bad karma. Now when will it happen to all of the others? Wells Fargo, Am-Ex etc.

Laurel Delaney

May 13, 2009 7:21 PM

In your due-diligence John, please let us know what is going to happen to IdeaBlob:
http://www.ideablob.com/

Thanks,
Laurel
http://tinyurl.com/r36t5a

Erika Nowak

May 13, 2009 8:20 PM

Advanta has really treated us Small Business Lenders badly by raising interest rates for cash advances from 9.99% last May to 37.18% in Jan.09 without a good reason. This raised our monthly payment from about $300.- to about $940.- when it first showed up on the bill; no wonder that some people can't pay it off in time. It simply is not part of the monthly scheduled payment. We try to get away from that particular card and never ever use it again, so we do not care if they do or do not offer us new incentives into borrowing. Other banks like Capital One, US Bank and Wells Fargo have treated us well, helped with transfers away from Advanta and don't seem to be a cause for concern. Erika

John Tozzi (BusinessWeek reporter)

May 14, 2009 12:20 PM

Hi Laurel,

thanks for the question about IdeaBlob. I checked in with Amy Holderer of Advanta, and here's what she says:

"Blob is a separate company other than the credit card company and at this point nothing has changed."

No word on what the outlook for the future is. The IdeaBlob site says the contest ends Sept. 30, 2009. It's hard for me to imagine Advanta keeping it going after that right now, but I guess it's possible that another company could pick it up.

Thanks to everyone else as well for sharing commments. Please keep them coming.

John

wcoastbo

May 16, 2009 9:08 PM

Funny, but Advanta did not notify me of this pending cutoff and I had to find out on a blog. I logged on my Advanta account and clicked on "news and press releases" and got a link to the businesswire.com story... so if an account holder wants to know, they have to do some digging to get the news. How unfortunate.

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. Banks must hate customers like me using them for the convenience and rewards, but not paying any fees.

Anyone have the inside scoop on the best reward cards?

The Auto Shop

May 26, 2009 8:56 PM

I'm a disappointed Advanta customer. I've had their small business card for several years and have been very happy with their service and rates. I'm sad to see them go. The cash back rewards were always a nice bonus, I even lost one once and they sent out a replacement check within a week. I'd also like to know who else has a good rewards program.

Tim

May 27, 2009 2:27 AM

I had no idea Advanta was cutting off their cc sector until this morning. To give us 4 days to find a new credit card is jacked up. I use this card for places that don't take AMEX. I am thinking of applying for Chase Freedom. Does anyone have a good Visa or MC recommendation?

Laurel Delaney, Chicago, IL

May 27, 2009 1:21 PM

Hi, John,

Thank you for following up. I am confused over Amy's comment about IdeaBlob being a separate company from Advanta.

My understanding (from a meeting in Chicago on 8/29/08) is that Ami Kassar (former Shop2Give founder) started the business for and while employed at Avanta. He's their Chief Innovation Officer.

Michael

May 29, 2009 6:07 PM

I too am disgruntled over the Advanta situation only finding out through word of mouth on Wednesday. I found a great alternative with Comdata that seems to be quite different (no interest at all)and I'll have cards by next week.

Paul Bannon

June 2, 2009 4:39 AM

How can I find out when ADVNB and ADVNA resume lending?

Sincerely: Paul Bannon

Laurel Delaney

June 3, 2009 10:51 PM


Hi, John,

Relative to your May 14th comment, you might want to check back in with Amy:

http://tinyurl.com/oquytu

Scan to the eighth paragraph in the article.

Regards,
Laurel

Jenni

June 18, 2009 1:31 PM

I am in the same boat as most of these folks... I too am a sm biz owner and took advantage of the 0% interest sign up and was later given a 35% interest for no reason. Now that they are out of biz, have screwed us all in many ways, any stipulations that can relief us of paying off our balances or filing lawsuit??? They have now made it impossible for us to keep up and even try to do the right thing in this economy. They KNEW this was going to happen, thus they started jacking up everyone's rates to 'pre-accumulate' and make up for their loss who cares about the customer...then, wha laaa,,, we are all shut off cold.... jerks!

A Ostrov

August 2, 2010 6:53 PM

These guys are a nightmare. Our rate went to 32.99% for no reason, and when we called to get the rate reduces, we were told that this is the LOWEST rate available. The phone rep suggested we transfer the balance to another card if we didn't think the rate was fair.

One word for these guys: EXTORTIONISTS!

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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. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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