Advanta customers to get restitution

Advanta Corp. will pay up to $35 million in restitution to customers for alleged violations of federal consumer-protection and banking laws, the Spring House credit card company said today.

Advanta, which froze its small-business customers' credit cards at the end of May because of mounting defaults, also agreed to pay a $150,000 civil fine under the deal between Advanta's bank subsidiary and the Federal Deposit Insurance Corp.

The company admitted no wrongdoing.

The $35 million in potential restitution includes up to $21 million for allegedly failing to properly notify customers about increases in interest rates.

The FDIC said it received numerous complaints about substantial increases in annual percentage rates from borrowers who neither exceeded their credit limit nor were late on payments. In some cases, rates soared from 8 percent to 36 percent, Advanta customers said.

Such customers will get back two months' worth of excess interest under the agreement with the FDIC. The company has 60 days to start making the payments and 120 days to complete them.

The company has also agreed to pay up to $14 million in restitution to consumers for allegedly deceptive marketing of a cash-back rewards program. The FDIC said it was effectively impossible for customers to get back the amount of money advertised by the company because it was not clear that certain purchases were not eligible for the program.

The company took a $14 million pretax charge to cover that expense in last year's third quarter because it was already in discussions with regulators.

The FDIC also put restrictions on Advanta Bank Corp.'s use of cash and other assets and required that the bank submit a plan within 30 days on how it will wind down deposit-taking operations, a process that is expected to take several years.

The company also has a chance to convince the FDIC in a separate plan that it should stay in business and keep buying deposit insurance. Advanta said in a Securities and Exchange Commission filing that it intended to submit such a plan. In the meantime, deposits at the bank remain covered by FDIC insurance to the extent allowed by law.

Customers with Advanta certificates of deposit need not look for a new place to stash their money. "We will allow rollovers of deposits, but we won't actively market for new ones for the foreseeable future," Advanta's chief financial officer Philip M. Brown said.

Contact staff writer Harold Brubaker at 215-854-4651 or hbrubaker@phillynews.com.