Irate cardholders have filed suit for up to $5 million from Advanta Corp., the small-business issuer that stopped lending last month due to funding problems.
The suit, which seeks class-action status, focuses on how Advanta handled some accounts in the months before it shut down lending. It accuses Advanta of "unilaterally, unfairly and illegally" changing the terms of the plaintiffs' credit card agreements, "increasing their effective interest rates … in an attempt to unfairly accelerate repayment of outstanding balances and to increase immediate revenues."
On May 11, Advanta said it would let its securitization funding vehicle unwind and stop lending to its almost one million cardholders, which it did on May 30. The lawsuit was filed in Superior Court for the County of Santa Clara, in California, on June 16.
Consumer complaints about Advanta's practices had been rampant since last year, when it began responding to a surge in chargeoffs by repricing accounts, in some cases by almost 30 percentage points.
The lawsuit said that, last year, "Advanta imposed new APRs on plaintiffs' credit cards … increasing the promised fixed rate to as high as 29.99%. … These new terms were not previously disclosed in any form to Advanta's customers and were not the result of any breach of the contract by the consumer."
The plaintiffs are two Advanta cardholders who claimed that they "and similarly situated Advanta customers have been damaged by … having to pay interest and finance charges with interest accrued at higher rates than Advanta promised." The suit puts the "amount in controversy" at up to $5 million — $75,000 per cardholder included in the class, plus interest and costs.
Arthur D. Levy, a plaintiff's attorney, wrote in an e-mail Wednesday that "Advanta's lending moratorium does not affect this case. This is to make customers whole for past illegal rate increases. We are monitoring Advanta's financial situation and so far … they appear to have sufficient capital to repay their customers in our case."
A spokeswoman for Advanta said it does not discuss pending litigation.