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.)