Advanta

Advanta was an American banking and financial-services company, distinct from similarly named energy and agricultural businesses. It began in 1951 as a provider of fixed-payment personal loans to schoolteachers. For much of its early history, the company operated on a relatively narrow geographic and customer base: it was licensed in Pennsylvania, Florida, and Delaware, had no bank of its own, and concentrated on lending rather than mortgages or broader finance. In 1971, Dennis Alter took over from his father. At that point the business had approximately 30 employees and remained primarily associated with teacher lending. The company expanded substantially during the 1980s and 1990s. It developed a large consumer credit-card operation and, during the early 1990s, reportedly reached approximately $25 billion in assets and around seven million cardholders. This made Advanta one of the largest consumer credit-card businesses in the United States at the time. In 1999, Advanta sold its consumer credit-card business and related assets, redirecting its strategy toward small-business customers. The shift placed entrepreneurs, home-based businesses, and small organizations at the center of its commercial model. By the early and mid-2000s, Advanta was principally known for credit cards marketed to small businesses, particularly enterprises with fewer than ten employees and under $3 million in annual revenue. In 2003, it reported earnings of $28.2 million and was described as the third-largest U.S. credit-card company focused on small businesses. It employed approximately 1,000 people in 2004, concentrated mainly in the Philadelphia region with additional operations in Salt Lake City. In early 2006, the company reported approximately $4.9 billion in managed assets and annual income of just under $400 million. Advanta’s business model came under severe pressure during the financial crisis of 2008–2009. Credit losses rose sharply, the company abandoned plans for a new Pennsylvania headquarters, reduced dividends and expenses, and announced major layoffs. It also repriced many credit-card accounts, in some cases raising interest rates from single-digit levels to above 30 percent. As funding vehicles supporting its card receivables entered early amortization, Advanta lost the ability to accept new card charges. In June 2009 it closed its small-business credit-card accounts and exited the credit-card business. Its reported card default rate later reached 56.95 percent, reflecting the deterioration of the portfolio and the effects of changes in charge-off policy. The company pursued debt repurchases and other balance-sheet measures, but regulators did not permit a proposed discounted repurchase of approximately $1.4 billion in senior notes. Advanta continued to report large losses and reduced its workforce further. It filed for Chapter 11 bankruptcy protection on November 8, 2009. Advanta Bank Corp. was seized by Utah regulators on March 19, 2010, with the Federal Deposit Insurance Corporation appointed receiver. The FDIC estimated the cost to its Deposit Insurance Fund at approximately $635.6 million. Subsequent arrangements transferred servicing of remaining credit-card balances to CardWorks Servicing and established mechanisms for handling deposits and other obligations. A reorganization plan was developed in 2010, followed by an initial distribution under the plan in February 2011. Advanta-related trusts and entities continued certain asset-recovery and legal proceedings, including preferential-transfer litigation filed in Delaware in 2011. The Advanta name therefore represents a defunct U.S. financial-services business whose principal late-stage identity was as a specialized small-business credit-card issuer.

Advanta began in 1951 as a provider of personal loans to schoolteachers. Its early business was comparatively limited: it offered fixed-payment loans, operated under licenses in Pennsylvania, Florida, and Delaware, and did not own banks or participate in mortgage finance. Dennis Alter assumed control from his father in 1971, when the company had about 30 employees and continued to serve teachers as its principal clientele. The company later expanded into credit cards and became a significant consumer-credit business. During the early 1990s, when its assets reportedly peaked at approximately $25 billion, Advanta had about seven million credit-card holders and ranked among the largest consumer credit-card issuers in the United States. In 1999 it sold the consumer credit-card operation and associated assets. That transaction marked a strategic redirection toward the small-business market rather than a withdrawal from lending altogether. Advanta’s principal later product was a credit card for small businesses. Its marketing targeted entrepreneurs, home-based firms, and small organizations, many of which had fewer than ten employees and annual revenue below $3 million. The company reported $28.2 million in earnings in 2003 and was described as the third-largest U.S. small-business credit-card company. It employed roughly 1,000 people in 2004, mainly in the Philadelphia area and also in Salt Lake City. Early in 2006, managed assets were reported at approximately $4.9 billion, with annual income just below $400 million. The financial crisis exposed the vulnerability of Advanta’s specialized card portfolio. In late 2008, plans for a new 200,000-square-foot headquarters in Upper Dublin Township, Pennsylvania, were abandoned. In February 2009, the company reported a $43.8 million fourth-quarter loss, primarily from credit losses. It cut dividends and expenses and announced the elimination of about 300 of 900 jobs. It also repriced card accounts, with some rates increasing from approximately 6 percent to above 30 percent. In May 2009, Advanta announced that new charges would be blocked because the investment vehicles used to fund card balances had entered early amortization. The company attempted to strengthen its finances by offering to repurchase senior investment notes at a discount, but regulators rejected the planned repurchase of approximately $1.4 billion of notes. By June, Advanta accelerated the closure of its roughly one million small-business card accounts and exited that business. Further layoffs reduced the workforce to fewer than 200 employees by July. The card portfolio’s reported default rate reached 56.95 percent, although the company attributed part of the sudden increase in charge-offs to a change from a 180-day to a 120-day charge-off rule. Advanta posted a second-quarter loss of $330 million in 2009 and began looking for alternative business opportunities. It reported lower charge-offs later in the year, but the percentage of accounts delinquent by 30 days continued to rise. Investor litigation was reportedly being prepared, and customers later filed complaints with government and consumer-protection bodies. Advanta filed for Chapter 11 on November 8, 2009. On March 19, 2010, Utah regulators seized Advanta Bank Corp., and the FDIC became receiver. The FDIC estimated the cost of the bank failure at approximately $635.6 million. Government ACH deposits were arranged through Zions National Bank, while CardWorks Servicing handled credit-card accounts that still carried balances. A financial plan for Advanta Corp. and affiliated debtors was developed in 2010, with an initial distribution made in February 2011. Related trusts and entities continued post-bankruptcy asset administration and litigation, including a preferential-transfer recovery action filed in Delaware in November 2011. Advanta ultimately ceased to operate as an independent banking brand.

• 2011

  Preferential-transfer litigation begins

  [1]Advantaen.wikipedia.org

  An Advanta-related trust begins Chapter 5 preferential-transfer recovery litigation in the District of Delaware.

• 2010

  Advanta Bank Corp. is closed

  [1]Advantaen.wikipedia.org

  Utah regulators seize Advanta Bank Corp. and appoint the FDIC receiver.

• 2009

  Credit-card business is closed

  [1]Advantaen.wikipedia.org

  Funding-market disruption and rising losses lead Advanta to stop new card charges and close approximately one million small-business card accounts.

• 2009

  Chapter 11 bankruptcy filing

  [1]Advantaen.wikipedia.org

  Advanta files for Chapter 11 protection on November 8.

• 2006

  Small-business card platform reaches mature scale

  [1]Advantaen.wikipedia.org

  Advanta reports approximately $4.9 billion in managed assets and annual income just below $400 million.

• 1999

  Consumer card business is sold

  [1]Advantaen.wikipedia.org

  Advanta sells its consumer credit-card operation and related assets and redirects its strategy toward small-business lending.

• 1971

  Dennis Alter takes control

  [1]Advantaen.wikipedia.org

  Dennis Alter succeeds his father and takes over a small, teacher-focused lending business with approximately 30 employees.

• 1951

  Advanta begins as a teacher-loan provider

  [1]Advantaen.wikipedia.org

  The company starts by providing fixed-payment personal loans primarily to schoolteachers.

A specialized U.S. lender and credit-card issuer focused first on schoolteachers and later on entrepreneurs, home-based businesses, and other small organizations.

• Personal lending · 1951

  Teacher personal loans

  Advanta’s original offering consisted of fixed-payment personal loans aimed primarily at schoolteachers. The early business was geographically limited and did not involve mortgage lending or bank ownership. These loans established the company’s initial identity as a specialized lender serving a defined occupational group.

• Credit cards

  Consumer credit cards

  During its expansion phase, Advanta operated a large U.S. consumer credit-card business. The portfolio reportedly reached approximately seven million cardholders in the early 1990s. Advanta sold this business and related assets in 1999 as it shifted toward small-business customers.

• Business credit cards · 1999

  Small-business credit cards

  Advanta’s principal late-stage offering was a credit-card platform for entrepreneurs, home-based businesses, and small organizations. Marketing focused on firms with fewer than ten employees and less than $3 million in revenue. The business was closed in June 2009 after funding vehicles entered early amortization and portfolio losses escalated.

• Depository banking

  Bank deposits

  Through Advanta Bank Corp. and Advanta National Bank, the company also held banking operations and insured deposits. Advanta Bank Corp. was closed by regulators in March 2010, after which the FDIC acted as receiver and arranged servicing and payment mechanisms for depositors.

• 2009

  Interest-rate repricing and customer complaints

  Advanta raised rates on many card accounts, in some cases from single-digit levels to above 30 percent. The repricing, account closures, and later complaints about cash-back treatment and legacy-account servicing became prominent issues during the company’s collapse.

  Source

• 2009

  Investor and customer litigation concerns

  Reports described preparations for a proposed investor class action and later complaints to federal and state consumer-protection authorities concerning Advanta’s card practices and account handling.

  Source

Read more

• 2009

  Broad repricing of card accountsPrice change

  Background

  Advanta faced rapidly increasing credit losses and pressure on its funding and capital position.

  Action taken

  It increased interest rates on many card accounts, with some rates moving from approximately 6 percent to above 30 percent.

  Aftermath

  The repricing generated substantial customer criticism while the card portfolio continued to deteriorate.

  Source

• 2009

  Exit from credit cardsStrategy

  Background

  Funding vehicles supporting card balances entered early amortization, limiting Advanta’s capacity to accept new charges.

  Action taken

  Advanta stopped new charges and accelerated the closure of approximately one million small-business credit-card accounts.

  Aftermath

  The company abandoned its core operating business and entered bankruptcy later that year.

  Source

• 2009

  Proposed discounted debt repurchaseOther

  Background

  Advanta sought to improve its balance sheet while its funding access and asset quality were deteriorating.

  Action taken

  The company proposed buying back approximately $1.4 billion of senior debt notes at 65 to 75 percent of face value.

  Aftermath

  Regulators rejected the proposed transaction, leaving the company without that planned balance-sheet relief.

  Proposed senior debt repurchase. (2009)

  Source

• 1999

  Shift from consumer cards to small-business financeStrategy

  Background

  Advanta had built a substantial consumer credit-card operation but chose to sell that business and related assets.

  Action taken

  The company redirected its lending strategy toward entrepreneurs and small organizations.

  Aftermath

  Small-business credit cards became Advanta’s defining product before the business was overwhelmed by the 2008–2009 credit crisis.

  Source

• 2010

  Advanta Bank Corp. is seized by Utah regulators[1]Advantaen.wikipedia.org

  Bankruptcy · Regulation

  Utah regulators closed Advanta Bank Corp. and appointed the FDIC as receiver. The FDIC estimated the failure would cost its Deposit Insurance Fund approximately $635.6 million.

• 2009

  Advanta reports fourth-quarter loss and announces layoffs[1]Advantaen.wikipedia.org

  Leadership change · Other

  Advanta reported a $43.8 million fourth-quarter loss attributed principally to credit losses, announced dividend and expense reductions, and planned to eliminate approximately 300 jobs.

• 2009

  Advanta raises interest rates on card accounts[1]Advantaen.wikipedia.org

  Pricing · Regulation

  The company notified cardholders that interest rates could rise from as low as 6 percent to above 30 percent, including for customers whose credit scores had not deteriorated.

• 2009

  Advanta closes small-business credit-card accounts[1]Advantaen.wikipedia.org

  Product generation

  After funding vehicles entered early amortization, Advanta stopped accepting new charges and accelerated the closure of approximately one million small-business card accounts.

• 2009

  Advanta files for Chapter 11 bankruptcy[1]Advantaen.wikipedia.org

  Bankruptcy

  Advanta filed for Chapter 11 bankruptcy protection amid large credit losses, funding constraints, a collapsed card business, and continuing balance-sheet pressure.

1. 1Advantaen.wikipedia.org