Advanta Settlement Checks Arrive...With A Thud

Some Advanta cardholders are receiving checks from the company’s $35 million settlement with the FDIC over steep rate hikes. A reader Deborah writes in a comment:

My interest rate was raised to 34.99% almost a year ago. I had been at around 16% or 17%. Today I got a letter from John F. Moore, President, Advanta Bank Corp., with a check in the amount of $36.95 attached. This is apparently the result of the settlement Advanta reached with the FDIC regarding Advanta’s “Repricing Event,” which they state occurred between 6/1/07 and 12/31/08. The check is valid for only 120 days, and it states very clearly that by accepting and cashing the check, the payee is agreeing to release Advanta and its parent and subsidiaries from any further action. I still have an outstanding balance with them, on which I’m paying this egregious rate, and would like to know what recourse I might have. I don’t intend to cash the check, as $36.95 doesn’t come close to two months’ interest. But I can’t sit still and watch them get away with this. Any suggestions?

When the settlement was announced in July I had no luck tracking down how many cardholders might be eligible. (I just put queries into the FDIC and Advanta on this, and will update when I hear.) [See update below.] Advanta has about 1 million account holders, and it focused exclusively on small businesses.

The restitution sounds negligible for a lot of customers who are still paying 30%+ interest on outstanding balances. Per a reader Todd:

I also received my check today and am wondering whether it’s a good idea to cash it or wait to see if there is further action I can take. I was given an introductory offer of 0.00% and then 7.99% thereafter. However, it was increased to my present rate of 24.99% for no apparent reason. It would have increased to 34.99% if I hadn’t opted out and cancelled the account. Unfortunately, I still have a rather large balance. I called to request a rate decrease and was sent to an apparent call center in India. I was told the computers were down and I would receive a call back which never happened. Is there a class action suit or any other legal means to recoup the outrageous interest rates or at least decrease them?

I haven’t found any firm information about a class action, although months ago it sounded like someone was exploring the idea. If anyone knows more about this and wants to share the info, either in comments or privately, please go ahead. And if you got a restitution offer, let us know how much and what you plan to do.

The settlement is just a piece of Advanta’s troubles. The company cut off all new lending this spring, and it’s in danger of being de-listed from the NASDAQ because its shares are trading in penny-stock territory.

I’ll update when I hear more. In the meantime, please keep the comments on this one coming.

Update, Sept. 29

Advanta spokeswoman Amy Holderer declined to say how many customers are eligible for restitution, or the average amount of the payments.

The total amount available for restitution for repricing was reported at $21 million, with another $14 million set aside for restitution relating to a cash back rewards program. Just to put those numbers in context: Advanta lost $330 million in Q2.

The FDIC’s cease and desist order related to the marketing of rewards programs and rate increases. The regulator says Advanta violated rules against unfair and deceptive practices, as well as notification requirements. The order doesn’t require Advanta to lower the rates that the FDIC alleges were unfairly increased. The bank only has to pay customers restitution equal to two months of the difference between the promised APR and the higher rate.

In Advanta’s filing on the matter from July, the company notes that “the Bank did not admit any wrongdoing in entering into the agreements and entered into the agreements in the interest of expediency and to avoid litigation and the costs associated therewith.”

Update, Oct. 2:

I wanted to post links to two follow-up posts here, since this seems to be the main discussion thread.

Advanta Lawsuit Pending; Average Settlement $131

Advanta Customers’ Next Option: Small Claims Court

Also, I’ve heard from the attorneys involved in the California suit that is seeking class action status. There’s no Web site for the case since it hasn’t been certified as a class action yet, but Advanta customers interested can contact the lawyers directly. Their emails and phone numbers on the the first page of this complaint.