Advanta Corp. cut off almost a million small-business credit card customers Friday as its default rate surged.
The Spring House, Pa., issuer's chargeoff rate for loans it owns grew to 20% at March 31, more than twice the rates reported by rivals American Express Co. and Capital One Financial, 8.6% and 9.3%, respectively.
Advanta had said last month it would close the accounts June 10 but later advanced the schedule by nearly two weeks.
"We are closing all of our customer accounts to future purchases," Advanta spokeswoman Amy Holderer said in an e-mail.
Ken Paterson, an analyst at Mercator Advisory Group, said in an interview that some Advanta customers may now rely more on personal credit cards.
"These are individuals who probably have some access to personal credit," he said.
American Express and issuers with retail branch networks, such as Bank of America Corp. and JPMorgan Chase & Co., may pick off Advanta's most creditworthy customers, Paterson predicted. He said small businesses accounted for $330 billion in credit and debit transactions in 2007.
Amex spokesman Tom Sclafani said, "We suspect that Advanta customers are looking for other credit resources," and American Express is probably talking to some of them, "whether we know it or not."
Advanta said it has earmarked $1.4 billion to buy back most of its securitized card loans with offers of 65 cents to 75 cents on the dollar. The tender offers are to expire June 10 unless Advanta decides to extend or terminate them earlier, Holderer said.
Advanta relied on the asset-backed securities market for funding but has been unable to raise cash through securitization since June 2008, according to Bloomberg data. It is shut out of the Federal Reserve's Term Asset-Backed Securities Loan Facility because of ratings cuts on its bonds.
Credit card company profits suffered as the recession pushed the unemployment rate to 8.9% in April. Credit card chargeoffs historically track the jobless rate, and analysts at Moody's Investors Service said last week that the industry average for bad loans would likely top 10%, a record.
The share of bad U.S. credit card loans written off as uncollectible rose to 9.97% at an annualized rate in April, up from 6.27% a year earlier, according to the Moody's Credit Card Index Report.