Bootstrapped startup problem: credit card company abuse
Advanta (http://advanta.com) advertises a business card with "0% Fixed APR on balance transfers for 15 months with a 7.99% fixed APR therafter." I thought I saw this card positively reviewed in one of the entrepreneurial magazines. We signed up and for about 9 months, we made some charges and paid the balance in full each month. Then we decided to take out $25k in cash advance from the account with a reasonable transaction fee capped at $50. A few months after taking that cash advance, we were notified, in the words of a customer service rep, of "a slight change to our lending guidelines since your account was established." That slight change was an increase from 7.99% to 18.99%.
The notification letter was dated Feb 29, 2008 (date of letter, not receipt) and the new rate was effective March 20, 2008. The March 20 change was conveniently 5 days before the end of the billing cycle so that Advanta could take advantage of their billing clause that "any change in APR becomes effective as of the first day in the billing cycle.." So both the notification and rate increase happened within a single billing cycle.
Note that this increase in interest was NOT tied to any late payment. In an e-mail, a customer service rep wrote that the change occured because "Advanta reviews lending guidelines on a regular basis to ensure that they are in line with industry standards and the changing economy." Except they are still advertising the 7.99% rate on their website and mailings. Who do they think they're kidding?
After receiving the letter and corresponding with Advanta, I paid the $27k balance in full two days before the March 20 rate change and even had a negative $200 due because of a LogoWorks rebate. But because I did not send a signed written notice that I rejected the modified account terms, Advanta billed me 18.99% finance charges for the previous month on the cash balance.
We can only imagine how many people they rip off this way. It seems clear to us, they've automated this way of doing business to fleece people who don't rapidly and precisely respond to their unethical business practices.
Other ways they gain profits: "Cash Back Rewards" that aren't credited to your account but sent as cutout checks in sheets of paper behind regular account statements. They realize people, particular ones with online accounts and software, may not open or even notice the checks. So these "void within 90 days" checks will go unused. The envelopes containing these checks won't have any unusual markings and just say "Statement Enclosed." But envelopes that have cash advance checks and other ways to get you in debt have "Inside: Important Information About Your Account" on the envelope. Do you see a pattern here?
In looking at some card review sites, it appears we aren't the only ones getting the jump in interest for no reason. We contacted the FDIC and spoke with the Advanta specialist. It seems as long as they are following the business agreement they wrote (to fleece consumers, I believe), then the FDIC can't do anything.