American Business Financial Services Letter to Noteholders Regarding Interest Reported on 1099 Forms.

PHILADELPHIA -- American Business Financial Services, Inc. ("ABFS" or the "Company") ("ABFIQ") posted the attached open letter to all of its subordinated debt investors on the Company web site, www.abfsonline.com.

American Business Financial Services, Inc., together with its subsidiaries, is a financial services organization operating mainly in the eastern and central portions of the United States and in the state of California. The Company originates, sells and services home mortgage loans through its principal direct and indirect subsidiaries. The Company voluntarily filed to restructure under Chapter 11 on January 21, 2005 in Wilmington, Delaware.

Some of the information included in this press release may contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements can be identified by forward-looking words such as "may," "will," "expect," "intend," "anticipate," "believe," "estimate," "plan," "could," "should" and "continue" or similar words. These forward-looking statements may also use different phrases. These forward-looking statements are not historical in nature and include statements that reflect, when made, ABFS' views with respect to current events and financial performance. All such forward-looking statements are and will be subject to numerous risks, uncertainties and factors relating to ABFS' operations and business environment, many of which are beyond ABFS' control, that could cause actual results to differ materially from any results expressed or implied by such statements. Factors that could cause actual results to differ materially include, without limitation: the ability of ABFS to continue as a going concern; the ability of ABFS to obtain bankruptcy court approval with respect to motions in the Chapter 11 proceeding filed by it from time to time, including the motions filed with ABFS' first day papers to approve, among other things, the debtor-in-possession (DIP) financing; ABFS' alternatives in the event the bankruptcy court does not grant final approval of the DIP financing; the ability of ABFS to operate pursuant to the terms of the DIP financing; the ability of ABFS to develop, prosecute, confirm and consummate one or more plans of reorganization with respect to the Chapter 11 proceeding; risks associated with third parties seeking and obtaining court approval to terminate or shorten the exclusivity period for ABFS to propose and confirm one or more plans of reorganization, for the appointment of a Chapter 11 trustee or to convert the Chapter 11 proceeding to a Chapter 7 proceeding; potential adverse publicity surrounding the Chapter 11 proceeding; the ability of ABFS to obtain and maintain adequate relationships with vendors and loan brokers and manage relationships with its creditors and other lenders; the ability of ABFS to fund its working capital needs through the expiration of the DIP financing and thereafter; the potential adverse impact of the Chapter 11 proceeding on ABFS' liquidity or results of operations; the ability of ABFS to adequately fund and execute its business plan; the ability of ABFS to attract, motivate and/or retain key employees; potential actions of regulatory authorities which govern ABFS' operations; the outcome of legal proceedings to which ABFS is or may become a party and other risks described in ABFS' reports filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, including factors described in ABFS' Annual Report on Form 10-K for the fiscal year ended June 30, 2004 and amendments thereto. These statements speak only as of the date of this press release, and ABFS disclaims any intention or obligation to update or revise any forward-looking statements to reflect new information, future events or developments or otherwise, except as required by law. ABFS provides additional information in its filings with the SEC, which readers are encouraged to review, concerning other factors that could cause actual results to differ materially from those indicated in the forward-looking statements.

Similarly, these and other factors, including the terms of any reorganization plan or other alternative transactions ultimately confirmed, can affect the value of ABFS' existing common stock and/or other equity securities. There has been no determination, and no assurance can be given, as to what values, if any, will be ascribed in the Chapter 11 proceeding to ABFS' existing common stock and/or other equity securities. Accordingly, ABFS urges that the appropriate caution be exercised with respect to existing and future investments in ABFS' common stock and/or other equity securities.

An Open Letter to Our Subordinated Debt Investors

Dear ABFS Noteholder,

Recently ABFS sent out 1099 forms for the 2004 tax year to all subordinated debt investors, and we are aware that there is some confusion about how the Company treated accrued interest. We want to communicate directly with you regarding this issue and give you some background information to help you understand why certain investment interest was reported to the IRS. Unfortunately, like many other issues involving federal tax law, the explanation is somewhat technical and complicated, but we nonetheless felt it was important to try to address any questions you may have.

The practical effect of the Internal Revenue Code is that debt instruments (ABFS investment and money market notes are types of debt instruments) which give investors the option to choose how interest earned is to be paid to investors (e.g., monthly, quarterly, annually or reinvested in the form of additional notes) are generally considered as having "original issue discount" (OID) for federal income tax purposes.

Federal tax law requires any company that issues debt instruments with OID to report to the IRS the amount of the interest accrued on the debt instruments rather than the amount of interest paid.

As you may know, all ABFS fixed term notes give the individual investor the option to decide how interest is to be paid. As a result, we were required to report to the IRS the amount of interest earned (OID) during the tax year regardless of whether the full amount of the interest earned had been actually paid to the noteholder.

We regret the fact that the requirements of the Internal Revenue Code have resulted in what might seem like unfair treatment of certain noteholders. We also regret any confusion or frustration this issue may have caused you. However, we were bound by federal tax law to act in the manner we did.

If you have additional questions regarding your 1099 form, we recommend that you consult with your own tax advisor. You should also feel free to call the IRS toll free tax assistance line at 1-800-829-1040.

Sincerely,

    American Business Financial Services, Inc.

    March 17, 2005