Advanta Corp. has rate and fee increases in the works that are likely to make cardholders mad.
Still hurting from a $20 million first-quarter loss, the Spring House, Pa., credit card issuer reportedly advised some cardholders it would raise interest rates. It is also serving notice with amended cardholder contracts that it may charge fees for closing an account or not using it.
Merrill Lynch analyst Michael R. Hughes said in a report last week that several cardholders received mailings informing them of an annual rate increase of anywhere from 17% to between 20% and 23%.
Advanta also told the cardholders that cash advance fees would jump from 2% per transaction to 4%, with a minimum charge of $5, and interest rates on cash advances would rise from 23% to 25%.
But the worst thing in the eyes of many industry observers is Advanta's proposed $25 fee for closing accounts and a levy of $15 for accounts not used in six months.
"We reserve the right to impose a fee," said Pamela Godwin, senior vice president, customer management, Advanta, who added that it would not happen in the near term.
But Stanley Anderson, president, Anderson and Associates, Arvada, Colo., said, "Cardholders don't retain an account under threat of penalty."
Ms. Godwin said the $25 closing fee would offset the costs of closing an account.
However, Michele Turkel, president, Spectrum International Consulting Corp., Scarsdale, N.Y., said, "It costs about $2 to close an account."