Advanta agrees with FDIC on refunds, deposit halt

NEW YORK (Reuters) - Advanta Corp ADVNA.O, a small-business credit card lender that recently shut 1 million accounts, was ordered by the Federal Deposit Insurance Corp to refund as much as $35 million to customers because of alleged "unsafe or unsound" practices, and to plan to stop taking bank deposits.

The Spring House, Pennsylvania-based company entered separate agreements with the FDIC on Tuesday. A month earlier, Advanta had cut off its card customers after 20 percent of its loans had gone into default as of March 31.

One agreement addressed allegations that Advanta violated federal trade laws through its pricing strategies on business credit cards and in its marketing of cash-back rewards on the cards.

Advanta said it will take a second-quarter charge to cover a potential $21 million of refunds over pricing. It previously took a $14 million charge for refunds tied to the alleged marketing violations. Advanta also agreed to a $150,000 fine.

The second agreement calls for the Advanta Bank unit to submit a plan to terminate its deposit-taking operations and deposit insurance once existing deposits are repaid in full, a process expected to take a few years.

That agreement also restricts the ability of Advanta Bank to use its cash and pay dividends, and requires the unit to remain "well-capitalized."

Advanta ended March with $2.39 billion of deposits. It said deposits remain insured as allowed by law, and that it will continue to service credit card accounts and receivables.

The company said it did not admit wrongdoing and entered the agreements "in the interest of expediency and to avoid litigation." Spokeswoman Amy Holderer did not return a request for further comment.

Advanta has begun referring some customers to American Express Co (AXP.N), whose charge-off rate is considerably lower. Last month, Advanta abandoned a $1.4 billion tender offer for some senior notes, designed to help boost capital. Advanta lost $75.9 million in the first quarter.

In afternoon trading, Advanta shares fell 3 cents to 40 cents on the Nasdaq. The 52-week high is $7.80 set on September 8.

(Reporting by Jonathan Stempel; Editing by Gerald E. McCormick, Phil Berlowitz)