Advanta Freezes Credit Cards – High Yield Notes in Jeopardy?

by Darwin on May 13, 2009

In a desperate attempt to preserve capital, Advanta has halted all charges from its small business customers after June 10.  This is especially disturbing to not just small business card holders, but also, the thousands of individuals holding their high yield investment notes (see initial skeptical article 1 month ago on Advanta Investment Notes).  In the same newspaper that this article appeared today, there’s a page with multiple ads from Advanta touting high yield investment notes paying up to 11%.  Undoubtedly, these absurdly high yields are continuing to draw the interest of income seekers, at their peril.  So, while they’re hemorrhaging money from credit card losses, they’re still spending like drunken sailors on ads to bring in new cash from retail investors in high yield notes that aren’t FDIC insured.

Some have speculated that this action will actually worsen the situation for Advanta since some Advanta customers were only making minimum payments so they could continue to rely on their card.  Now, with this action, they no longer have the same incentive and the Advanta payments may very well move lower on the list of monthly payment priorities.

So, these high yield Advanta investment notes have essentially become a binary option – they will either pay or they will not depending on whether the company survives.

For 8.5%-11%, or a 100% offer for that matter, is that a risk you’re willing to take?

For more background on how these notes work, visit the original Advanta article.

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