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That agreement addresses charges that theSpring Pa.-based company violated federal trade laws throughh its pricing strategies on business crediyt cards, and in its marketing of cash-back rewardss on the cards. Advanta said it did not admi t wrongdoing and that it entered theagreements “ib the interest of expediency and to avoicd litigation.” Advanta said it took a $14 million charg to cover refunds tied to the alleged marketing violations in third-quarter 2008 and will take a second-quarter 2009 charges to cover refunds over its pricing which it said could total $21 million. Advantaa also agreed to a $150,000 fine.
In a separater agreement with the FDIC, Advanta’s ability to use cash and pay dividendw hasbeen restricted. The company must submit a plan toremainn "well-capitalized," and submit a plan to terminatr its deposit-taking operations and deposit insurancr once its deposits are repaid in full, a procesx expected to take a few years. The secon agreement with the FDIC places restrictionseon Advanta’s use of its cash payment of dividends and transactions that wouldx materially alter its balance sheet compositiobn and taking of brokered deposits.
Advanta said the second order does not in any way restrict it from continuintg to service itsmanaged credit-cards accounts and receivables. In an effort to limi losses and erosion of its capital ascreditf deteriorates, Advanta said in early May that its securitization trusgt will go into early amortization where the company uses receivables from customers to accelerate paymeny to investor bondholders. While that protects investors from prolonged exposure to a pool of receivables whose credit performance has Advanta would have needed an alternative way to fund new purchasesw onits customers’ credit cards. So it had to shut down futurse use, effective May 30.
It has since referred some customerss to AmericanExpress Co. Advanta’s stockj closed 2 7 percentt lower Wednesday at42
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