The Federal Deposit Insurance Corp. (FDIC) has settled with Advanta Bank Corp. regarding the latters alleged deceptive and unfair practices that are in violation of section 5 of the Federal Trade Commission (FTC) Act.
According to the settlement, Advanta will pay around $14 million to businesses that used Advantas Cash Back Reward program, and $21 million to shareholders whose accounts were repriced. The credit card firm has also agreed to a cease and desist order and a civil money penalty of $150,000.
Advanta did not admit or deny any liability.
"The Advanta settlement demonstrates the FDIC's commitment to having banks take responsibility for ensuring that they do not engage in unfair or deceptive acts or practices in connection with the banking products and services they offer," said FDIC Board member Thomas Curry. "Any person doing business with an insured depository institution can expect to be treated fairly, and any such entity that engages in unfair or deceptive acts or practices should be aware that the FDIC will pursue such practices with all of the legal authority at our disposal."
Advantas Cash Back Reward program advertised a percentage of cash back on certain purchases by business credit card account holders. These rewards were not available to all purchases because of the tiered structure of payments. This made it impossible to earn the advertised percentages of cash back payments.
The FDIC concluded that the banks solicitations were misleading to a reasonable customer, concluding that Advanta had engaged in a pattern of deceptive acts or practices that were in violation of Section 5.
Additionally, complaints were filed regarding Advantas substantial APR increases that were without cause on accounts of small business owners and professionals. The FDIC also found that these rate increases were implemented unfairly without appropriate notification, and without justification for the increase, while failing to inform consumers of opt-put procedures and the consequences within.
The FDIC concluded that the re-pricing caused considerable injury to customer. Advanta allegedly also withheld and/or provided inadequate information that could have enabled the customer to reasonably avoid injury, and provided no benefit to the customer or the competition.
As an additional part of the settlement, Advanta agreed to pay restitution to the injured parties.