Here’s proof of the credit card industry’s escalating problems. Advanta Bank Corp., a credit card company serving small businesses, recently announced its intention to freeze new charges on credit cards for its approximately 1 million customers starting June 10. The Philadelphia-based company has been badly hit by defaulted loans, with 20% of its current credit card accounts written off as unrecoverable last March 31.
In closing all its credit card accounts, Advanta hopes to somehow stem its bleeding and preserve capital. About $1.4 billion will be used to pay off trust investors as little as 65 cents to 75 cents on the dollar.
In a statement to the Philadelphia Inquirer, Advanta’s Chief Financial Officer Phil Browne said that the firm’s objective was to “maximize capital and liquidity” so that they can still have the chance to “pursue businesses, credit cards and others, in the future.”
Advanta credit cardholders in the meantime are dismayed that the company’s move to freeze lending has not yet been properly disseminated to customers with barely a month to go before closing date. Many Advanta customers only learned of the decision through the news. But with many clients still left in the dark, this could cause a serious problem to small businesses which are depending on the Advanta card for their cash flow needs or else are charging bills to the card automatically.
Advanta representative Amy Holderer, in charge of media and investor relations, however said that “Customers will be notified at the appropriate time prior to June 10.” For those cardholders who also have accumulated rewards points, Holderer assured that even after June 10, “rewards that have been earned by customers will still be available for redemption as long as the customer is in good standing on their account with us.”
As soon as word of Advanta’s last-ditch effort to curtail losses got out last Tuesday (May 12), the company’s shares plunged by 46 cents or nearly 30% in the afternoon trading. Over the past two years, Advanta’s stock has dropped by a staggering 96%.