Find the best credit card offers online.Ailing major credit card company Advanta Corp. of the U.S. recently filed for Chapter 11 bankruptcy protection. Advanta was well known for being the largest issuer of credit cards for small businesses. Five months earlier, the company had put a freeze on all lending to its more than a million customer base.
The economic turn down definitely played a part in the downfall of the company but there are indications that the actions of the company itself may have had a hand in its current plight. During September of 2008, Advanta hiked the interest rates of their small business cards by 25% and, in some cases, even higher. This move left a lot of small businesses in a financial fiasco. This may have resulted in alienating a number of small businesses from the company. Others may have been financially burdened enough that they were unable to meet their debt obligations. In the long run, it may have contributed to the historically high annualized default rate seen last June. According to reports, almost one in two of credit cardholders gave up paying for their debts.
Last May, Advanta tried to salvage what it can by suddenly stopping credit card lending and putting a stop to all future charges, effectively cutting off available credit to its one million strong customer base. The company also tried to collect as much as it can from its credit card portfolio which had an outstanding $2.7 billion due.
Credit card problems are not the only ones that Advanta is facing. Last July, the company settled an FDIC charge which accused the company of “deceptive and unfair practices”. Advanta agreed to pay a number of small businesses $35 million in restitution for unfair interest rate hikes. There is also a shareholder lawsuit reported by Philadelphia Business Journal which accuses the company for aggressive credit approvals to small businesses without checking their capability to pay. The lawsuit also accuses the company of later on hiding from shareholders the fact that it was seeing losses amounting to millions of dollars coming from credit card defaults.
Advanta Bank Corp is the company division which issues credit cards and it is not included in the bankruptcy filing. In a statement issued by Advanta Corp, the company noted that the capital of Advanta Bank Corp is below the requirements of regulatory capital and the subsidiary will most likely be turned over for receivership to the Federal Deposit Insurance Corp. In the statement, Advanta Corp decided to stop efforts at covering their credit card losses so as to preserve the value for the senior retail note holders and the other stakeholders of the mother company.
