Most banks kept credit standards for commercial loans to small businesses (under $50 million in sales) the same over the last three months, while a handful further tightened credit, according to the latest quarterly survey of senior loan officers from the Fed. (PDF here.)

The last report in August seemed to show the credit crunch decelerating. Stabilizing might be a better word -- credit conditions are not really easing but they're not tightening at the rate they had been. Some details from the Fed below:

In the October survey, domestic banks indicated that they continued to tighten standards and terms over the past three months on all major types of loans to businesses and households. However, the net percentages of banks that tightened standards and terms for most loan categories continued to decline from the peaks reached late last year. ... A small net fraction of branches and agencies of foreign banks eased standards on [Commercial & Industrial] loans, whereas a significant net fraction continued to tighten standards on [Commercial Real Estate] loans. Demand for most major categories of loans at domestic banks reportedly continued to weaken, on balance, over the past three months. This weakening was somewhat less widespread than in the July survey for C&I loans, CRE loans, and nontraditional mortgages; approximately the same for consumer loans; and significantly more widespread for home equity lines of credit. ... Demand for C&I and CRE loans at foreign banks continued to weaken, on balance, but the weakening was somewhat less widespread than that in the July survey.

Advanta Corp., once one of the largest credit card lenders to small businesses, filed to reorganize under Chapter 11 bankruptcy protection Sunday night. The Spring House (Pa.) company's main operation that issued credit cards, Advanta Bank Corp, is not part of the filing. But Advanta said that unit doesn't have the capital required by regulators and may be taken over by the FDIC.

Advanta listed assets of $363 million and debts of $331 million, and said that over time it would not be able to meet its obligations.

Banking entities in distress are handled by their regulators, not in the bankruptcy courts, which is why Advanta Bank Corp. isn't part of the filing. Advanta said the bank subsidiary, which cut off all new lending in May, is currently collecting $2.7 billion in credit card receivables from 360,000 account holders. (Advanta's statement is here.) Advanta also said that the parent company deliberately allowed the Advanta Bank Corp. to fall below regulatory capital requirements to preserve the funds for the parent company's creditors. That means Advanta Bank Corp. -- which is the entity that 360,000 small business borrowers still owe money to -- is likely to be taken over by the FDIC or sold off to another bank shortly. Borrowers trying to renegotiate their payments with Advanta could be negotiating with a different bank in the near future.

Advanta became notorious among small business borrowers for offering credit cards at attractive low interest rates and then raising APRs steeply, often to over 30%. The company stopped all new credit card lending in May and entered into a settlement with the FDIC over the interest rate hikes, which the regulator said constituted unfair and deceptive practices. (Advanta didn't admit or deny liability in the settlement.) When settlement checks began arriving in September, the average settlement of $131 seemed laughable to many business owners who were still paying sky-high interest on thousands of dollars of charges they made under the initial low rates. At least one group filed a lawsuit seeking class action status. (An Advanta spokesman declined to comment about any pending litigation.)

Advanta isn't just in trouble with borrowers. Shareholders have seen Advanta stock drop from a high of over $30 in 2007 to pennies today. Jeff Blumenthal of the Philadelphia Business Journal has a good run down of the suits against Advanta, including a class action by common stockholders. From his story:

The complaint says Advanta concealed that its assets contained tens of millions of dollars worth of impaired credit-card receivables for which the company had not accrued losses; it had been extremely aggressive in granting credit to customers without verifying the customers’ ability to pay, to such a degree that by last summer, Advanta customers’ default rate would be almost six times worse than industry average; Advanta’s manipulation of its cash rewards program angered customers and caused it to lose good, creditworthy customers; Advanta’s credit receivables were unduly risky because of the company’s practice of issuing credit cards to small business owners without, in many instances, verifying income; and Advanta failed to properly account for its continuing delinquent customers and the credit trends in its portfolio, resulting ultimately in large charges to reflect impairments.

It's unclear whether Advanta will have anything left for plaintiffs to collect if these lawsuits go forward. The company filed for Chapter 11 reorganization, but if the FDIC takes over the banking subsidiary than most of Advanta's operations are gone. Chapter 11 may be a way of doing an "orderly liquidation" rather than a true reorganization.

One interesting note: If the FDIC takes over the bank subsidiary and has a claim against the Advanta parent company for failing to maintain minimum capital requirements, that claim gets priority over other unsecured creditors, according to Robert Lawless, bankruptcy law professor at University of Illinois and blogger at Credit Slips.

[Update: An earlier version of this post said that Advanta Bank Corp. fell below FDIC capital requirements. The capital requirements are actually set by banking regulators in Utah where Advanta Bank Corp. is chartered. It's also worth noting that as of June 30 about 2% of U.S. banks were considered undercapitalized, according to the FDIC. Regulators push banks into FDIC receivership based on different triggers, and in this case it's up to Utah authorities to determine if and when they will do so with Advanta Bank Corp.]

Performics reports that Twitter may be the place to get your brand mentioned if you want social networkers’ attention, according to MediaPost. Nearly half (48%) of those who saw a brand mentioned on Twitter turned to a search engine to research that brand. Other social networks lagged far behind, with 34% researching.

read more

Ever had a time in your neighborhood or apartment complex or anywhere for that matter that you were enjoying the peace and quiet of a time and then it happened? You know. One dog barks then every dog in the neighborhood decides they have to have their say.  Suddenly that peaceful moment is a cacophony of dumb dogs yelling at nothing in particular but still making a lot of noise and helping nothing. You just have to wait it out until they run out of energy and do the only thing that dogs do well; sleep.

read more