Why Small Businesses Need Credit Card Reform

A reader named Karen just left this comment on a post about credit card rates rising:

Today (5/26/09) I got an email from Advanta that they are closing ALL of their small business credit card accounts effective 5/30/09 - just four days notice. They do not offer to help you transfer to another card and say they are not accepting applications for any new cards. Just four days notice!

Advanta’s announcement originally said they would cut off their 1 million small business customers on June 10 because of steep losses, but now Advanta’s site says all accounts will close May 30. (They also have an FAQ for cardholders.) Advanta, which lost $76 million in Q1, announced the account closures on May 11. At the time spokeswoman Amy Holderer told me that “customers will be notified of changes to their card access at the appropriate time.”

Unfortunately the credit card reforms just passed leave out small business cards, so even if they were already in effect, Advanta customers wouldn’t benefit from the requirement to give 45 days notice before changing terms. (My understanding is that they’re already required to give 15 days notice, though, so I’m not sure how Karen’s treatment squares with the law.)

We’ve gotten many comments about Advanta raising rates willy-nilly. Business owners signed up for 0% teaser rates that were supposed to go up to 8%, but then later shot up above 20% or 30%. Many of the readers who reported these types of increases said they hadn’t missed payments or gone over their limits.

Those hikes may have alienated customers and made it even harder for Advanta to collect. Per this Fortune story (headlined “The credit card company everybody hates”):

Advanta may have made its problems worse by jacking up some customers’ interest rates, prompting them to cancel.


The bigger problem for major issuers stems from their own poor behavior during the boom, said Myron Glucksman, a structured finance consultant.

He said the public has grown exasperated with huge rate increases, excessive fees and unclear disclosure.

More on Advanta’s collapse from the Wall Street Journal.

Before it's here, it's on the Bloomberg Terminal.