Dennis Alter and the Tragedy of Advanta

A MIDDLE-AGED WEB designer in Virginia remembers her first thought, on discovering that the interest rate on her Advanta card had leaped nearly 30 points: “Screw ’em. I’ll just go bankrupt.”

And so she is.

Her husband is unable to work, debilitated by medical problems and their attendant costs. And she, who asked to withhold her name as a matter of privacy, hasn’t had much luck making a profit in recent years. So the couple was already surviving on thin financial air, using the credit card to keep her business aloft during the downturn. But now — driven by spite and hopelessness — she has pushed the nose of her business forward and plans to drive it into the ground.

People across the country received similar rate hikes from Advanta, regardless of their history with the company. Calls and letters from enraged customers poured into business bureaus and online complaint centers. Their stories were astonishing. “My interest has risen from 0 to the current 38.99 percent!” wrote a customer in Minneapolis. “I have a balance of $9,500 approximately. They charged me over $4,300 in interest in 2008. … Does anyone know some Mafia types that want to take my loan at 25 percent and get rid of these crooks?”

Or more succinctly, according to a former cardholder in Chambersburg, PA, “It’s going to be a COLD DAY in HELL before they see another penny from me!!!!”

Jacking up interest rates was “an actuarial decision” by Alter and his executives, according to Robertson, the industry analyst. “They looked at the algorithms and said, ‘We’ve got 90 days with this guy before he stops paying his bill. We can either get 12 percent of what he owes us, or 14.’” By midsummer, the FDIC stepped in, and Advanta agreed to refund up to $35 million to its customers for alleged “unsafe and unsound” practices.

Kevin Feltner, a nationwide game retailer based in Georgia, said he always paid his Advanta card bill — which sometimes topped $10,000 — on time. Then, in late May, he received an e-mail from Advanta saying that the company was experiencing restricted “flexibility”:

Unfortunately, as a result, effective May 30th all Advanta Business Credit Card accounts, including your account, will be closed. This means that you will not be able to use your card or account for new transactions, including purchases, checks and balance transfers beginning on May 30th.