FDIC says Advanta agrees to pay $35M restitution

WASHINGTON - Credit card issuer Advanta Corp. has reached an agreement with the Federal Deposit Insurance Corp. to pay $35 million in restitution to businesses and account holders for alleged "deceptive and unfair practices."

Advanta, which said in May it was shutting shut down its credit card lending operations as it battles surging loan losses, did not admit or deny any liability, the FDIC said. Spokesmen for the Spring House, Pa.-based company could not be reached for comment late Wednesday.

The FDIC said that under the settlement with the company's Advanta Bank Corp. unit, Advanta also agreed to pay a civil penalty of $150,000.

Restitution of about $14 million will be paid to businesses that used Advanta's "Cash Back Reward" program and $21 million to account holders affected by the company's pricing strategies on credit cards issued to small business owners and professionals, the FDIC said.

According to the FDIC, Advanta's "Cash Back Reward" program advertised a percentage of cash back on certain purchases by business credit card account holders. But the advertised percentage was not available for all purchases and as a result, it was "effectively impossible to earn the stated percentage of cash back reward payments," the agency said.

The FDIC also said it determined that Advanta's annual percentage rate increases "had been implemented in an unfair manner, that Advanta failed to adequately notify accountholders that their APR had increased, the amount of the increase, the reason for the increase, the procedures to opt-out and the consequences of an opt-out."

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.