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TESS VIGELAND: It's been less than two months since Congress passed all those new rules making it tougher for credit card issuers to change the rules on their customers. But the law doesn't take effect until February. And in the meantime, banks are doing everything they can to make a buck before it gets harder to do so.
This week Sen. Chris Dodd warned credit card companies about hiking interest rates in anticipation of the new rules. But one bank took steps that surprised even the FDIC.
And now the agency is basically shutting it down.
Marketplace's Steve Henn has the story.
Steve Henn: Just two months ago, Advanta Bank was one of the largest suppliers of small-business credit cards in America.
But on June 10 the bank cut off credit to all of its 1 million customers. And overnight, shop owners across the country lost their short-term credit.
Gillette Kempf: My name is Gillette Kempf and I own Borealis Bookstore. It's a small independent book store in Wadena, Minn.
Kempf was one of Advanta Bank's customers. And losing her credit card wasn't the only surprise with her online account. Advanta also raised the interest rate on her balance from 7 percent to 34 percent.
Kempf: I got to the bottom of that electronic statement and looked at that and I just felt ill. I felt like I had been betrayed.
The FDIC was flooded with complaints. And last week it forced Advanta Bank to pay back $35 million to customers like Kempf.
Richard Newsom: They basically accused them of cheating their own customers out of $35 million dollars.
Richard Newsom is a fraud investigator and former bank examiner. He says the default rates on Advanta's credit cards skyrocketed recently -- hitting 20 percent -- and the banks finances are precarious.
Apparently, federal regulators agree. Last week, they also ordered Advanta Bank to create a plan to stop accepting new deposits, pay its existing depositors back and then to terminate its FDIC insurance
Newsom: The bank is essentially being forced out of business by the FDIC.
But Newsom says the FDIC can't legally can't shut down the bank's parent company. And that parent company, Advanta Corp., is still trying to attract new investors -- aggressively advertising short-term investment notes that offer rates as high as 11 percent.
Newsom: But these are securities that are actually advertised in the San Francisco Chronicle. The target of these securities is actually like moms and pops. They are designed to be sold to unsophisticated people.
Newsom's studied the company's public filings. He believes that because Advanta Bank is being pushed out of business, soon the only money Advanta Corp. will have to pay off old investors will have to come new investors.
Newsom: Practically speaking, it has aspects of a Ponzi scheme.
Several former securities officials and banking law experts agree. But Art Wilmarth, a law professor at George Washington University, says it isn't clear if anyone has the legal authority to shut Advanta Corp. down.
Art Wilmarth: This is an industrial loan company which is essentially a loophole institution.
Wilmarth says these industrial loan companies are not directly regulated by anyone. The Obama administration would like to shut all of these firms down, but until Congress changes the law, it can't.
So in the meantime Richard Newsom has this advice for anyone thinking of investing in Advanta Corp.
Newsom: Run for the exits.
Advanta's executives did not respond to repeated requests for comment.
In Washington, I'm Steve Henn for Marketplace.