July 20, 2009
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News: Advanta Buried in Defaults
Advanta Corp, a major business credit card company that shut off all its accounts to new charges in May, announced that defaults more than doubled in June to 56.95%. Advanta, once a primary source for small business credit cards, shut down over a million card accounts as part of their plan to maximize capital and reduce risks. According to the industry standard, credit card debt is eligible for write off when it becomes 180 days delinquent. Advanta announced that because they had shut down the accounts to future use, they have begun writing debt off after the accounts became 120 days delinquent. The enormously high Advanta defaults far exceeds the industry average as reported by the Fitch Ratings in June of 10.4%.
Up till now, Bank of America Corp. had topped the industry with the highest loan defaults including credit card debt for the month of June at 13.86%. In addition to the high credit card debt defaults, Advanta loans that were delinquent 30 to 119 days in June increased to 8.12% up from 7.07% in May. Delinquencies that were 30 to 59 days past due also increased in June to 3.64% up from 2.71% in May. Advanta had also announced earlier this month that it began notifying approximately 200 employees of lay off's to reduce expenses which would cost the company over $8 million in severance packages.
On July 1st, Advanta entered into an agreement with the Federal Deposit Insurance Corp. (FDIC) to avoid the expense of litigation which entered a cease and desist order. The order requires the company to devise a plan to end Advanta's "deposit taking operations and deposit insurance after the bank's deposits are repaid in full." The whole process is expected to take several years and in no way inhibits Advanta from managing its credit card accounts and receivables. The financial company is based out of Spring House, PA. During the 1990's, the company was ranked the sixth largest consumer credit card company in the nation.