There Should Have Been a Better Way
The website for Advanta Corp. identifies the tagline of that company on the upper left hand corner as “Credit cards for small businesses”. In the center of the home page the company announces “Account closures: We deeply regret that all Advanta Business Credit Card accounts are closed, effective May 30, 2009.” Advanta stopped lending against open credit card accounts last month due to funding problems. On May 11, Advanta announced that it would allow its securitization facility to unwind.
Now irate small business cardholders are seeking class-action status in litigation against Advanta filed in Superior Court in Santa Clara, California on June 16. They allege that Advanta “unilaterally, unfairly and illegally” changed the terms of credit card agreements, “increasing their effective interest rates…in an attempt to unfairly accelerate repayment of outstanding balances and to increase immediate revenues”. Consumer complaints against Advanta rose dramatically last year when the company responded to the spike in charge-offs by re-pricing accounts, sometimes by as much as 30 percentage points. The documents filed in court state that last year “Advanta imposed new APRs on plaintiffs’ credit cards…increasing the promised fixed rate to as high as 29.99%….These new terms were not previously disclosed in any form to Advanta’s customers and were not the result of any breach of the contract by the consumer”. The plaintiffs are Advanta cardholders who believe that they and other customers have been harmed by “having to pay interest and finance charges with interest accrued at higher rates than Advanta promised”. The lawsuit is seeking $75,000 per cardholder plus interests and costs.
Given that Advanta has terminated all of its small business accounts, what do the plaintiffs hope to gain, besides compensation which, even if awarded by the court, may not justify the time and effort invested in the process of litigation? According to American Banker, Arthur D. Levy, the attorney for the plaintiff, wrote that “Advanta’s lending moratorium does not affect this case. This is to make customers whole for past illegal rate increases. We are monitoring Advanta’s financial situation and so far….they appear to have sufficient capital to repay their customers in our case.” In effect, they are litigating over past abuses that credit card reform legislation was meant to correct. However, as I wrote in an earlier blog posting, the legislation Congress passed aids individual consumers and is of no benefit to small businesses. In choosing inaction, Congress likely left small business owners to pursue justice in the courts, at expense to all taxpayers.