As the economy cratered in 2008, Advanta Bank Corp. raised interest rates on borrowers accounting for 68% of the debt in its credit-card portfolio, triggering a surge in defaults and the bank's subsequent federal takeover this year, a regulatory report said Tuesday.
The report by the Federal Deposit Insurance Corp.'s Office of Inspector General, which reviews all FDIC bank closings, said Advanta Bank failed because board and management did not have adequate risk-management plans for a severe slump in the ability of its small-business customers to make loan payments. In raising interest rates on some customers to as high as 36 percent, the bank, which was the main operating subsidiary of the now bankrupt Advanta Corp., was hoping to spur borrowers to pay off their accounts.