July 2, 2009
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News: Advanta Settles $35 Mil
Advanta has settled on two agreements stemming from charges of violating federal trade laws by allegedly participating in unsafe or unsound activities relating to its business credit card products. The lender, who specializes in providing financial assistance to small businesses, recently shut off all its business credit card accounts to further use in an effort to rescue the ailing company. Advanta's agreement with the Federal Deposit Insurance Corp. (FDIC) requires the financial organization to refund nearly $35 million to its customers. Charges brought up by the FDIC states that Advanta violated law with its business credit card marketing of cash back rewards and pricing strategies. In the agreements, Advanta did not admit to any wrongdoing and stated the company's reason for settlement was "in the interest of expediency and to avoid litigation."
Advanta has already taken a $14 million charge in 3rd quarter 2008 covering the refunds pertaining to the credit card marketing violations and expects to cover another $21 million in the 2nd quarter 2009 toward the credit card pricing and reward strategies violations. Additionally, Advanta was slapped with a $150,000 fine. In a second agreement, the FDIC placed restrictions on the use of the Advanta Bank's cash assets and pay dividends to prevent altering its balance sheet. It also requires them to provide the FDIC with a plan to remain "well capitalized" and another to terminate its deposit-taking operations and deposit insurance after all its deposits have been repaid.
According to Advanta, the second agreement's restrictions will not prevent them from doing business and they will continue to service the company's credit card accounts and receivables. The financial organization is based out of Spring House, PA. and had announced the business card shutdown in May. Some customers had complained that they were only given a few days notice via email before the card would be shut off to spending. Atlanta has, however, allowed customers to pay back their current debt as previously agreed. Advanta Corp. is traded on NASDAQ under the symbol ADVNB.