Groups seek relief for credit card debtors (up to 40% forgiveness)

[Newsjock]

Source: Associated Press

WASHINGTON -- An alliance of financial industry interests and consumer advocates asked federal regulators Wednesday to allow lenders to reduce by as much as 40 percent the amount of credit card debt owed by deeply indebted consumers in a special program.

... The unusual joint request from the Financial Services Roundtable and the Consumer Federation of America highlighted the urgency of the situation: consumers -- even those with strong credit records -- defaulting at high levels on their credit cards, while banks battered by the credit crisis bleed tens of billions in red ink from the losses.

... The request came in a letter to U.S. Comptroller of the Currency John Dugan, whose Treasury Department agency oversees national banks.

The groups asked him to approve a pilot project allowing major credit card companies to sharply reduce the amounts owed by heavily indebted consumers who don't qualify for the repayment plans that are currently available.

Read more: http://seattlepi.nwsource.com/business/385585_creditcards30.html

[Kaleko]

1. Pinch me. Am I dreaming??

[buddysmellgood]

2. I hope that's joke. I don't think people use credit cards like home loans.

If people who misused credit cards get a break while I made my payments....grrrrr.

[WCGreen]

3. Or paid taxes on the amount that was forgiven...

Not a chance...

This is ridiculous...

Having your equity eroded underneath you is one thing but claiming an olly olly infree because you ran up a credit card by taking trips to Cancun every other month is just plain ridiculous...

[chalky]

6. "trips to Cancun every other month" is a little extreme

All it takes is a medical crisis for a responsible credit card holder to get into deep doo doo. (I know...I was there five years ago. It took a lot of hard work, but now the only plastic I have is a debit card.)

But I do agree with you in that the debt should NOT be forgiven.
What SHOULD be done?
How about getting rid of those userous interest rates? And disallowing the late fee/raise the interest rate game the banks play with their customers? They'd be amazed at how quickly the FULL AMOUNT could be paid back if the banks didn't GAME THE SYSTEM.

[buddysmellgood]

10. I'm with you there. I'm not saying there is nothing to be done, I just would like

a thoughtful approach.

[Newsjock]

13. And as these comments clearly point out

... a practical, equitable solution to this dilemma seems next to impossible. Who is to decide what debt level is "excessive"? What about someone who bought $20,000 of home theater equipment, vs. someone who had to pay $20,000 for health care? What about someone who can pay off now? Should they not be allowed the same relief?

I have no good answers, but I see any proposal along these lines to be rife with potential to piss off a whole lot of people.

[buddysmellgood]

15. Indeed, so for starters, healthcare.

[WCGreen]

19. Freeze the credit debt where it is, charge a realistic rate of interest

would be a start.

Also, forgive the debt and then the person whose debt is erased would have to recognize that debt on their 1040. IF they have a legitamate say medical expenses, they should be able to write those expenses off dollar for dollar against the debt forgiven.

[DearAbby]

38. I agree with this.....lower interest rates

so people are paying off the debt, not the interest.

[pitohui]

39. you can't write off medical expenses like that

your suggestion is cruel and unfair

you have to have a significant % of your income that goes to medical expenses before you can write them off -- it's truly a crippling amt

PLUS in the cases i know of, where the person w. cancer had the huge credit card debt, despite having health insurance thru employer, it's because while undergoing chemo and radiation then he/she was unable to work, hence, the credit card was being used because otherwise the family could not be housed and fed


considering i know two breadwinners (one male/one female) who had very expensive but survivable cancers in their 30s, this issue is not rare (he had hodgkins, she had breast cancer -- with these they are going to live a long time as cancer survivors, in fact both have already survived 15-plus years so....there has to be a way for them to get out of debt or it would be better not to save lives if the lives are not going to be worth living

one of them actually considered suicide after he was pronounced recovered, and he did have to declare bankruptcy to save his house

the other had a much higher (6 figure) income pre cancer and still has had a surprising amt of struggle since as far as finances

but the point of my ramble -- because they used their credit cards for food, lines of credit to pay auto insurance and house notes, etc. -- these were not even considered deductible medical expenses

as far as i'm concerned, i'm thankful i was able to pay my bills over the years and i think folks in extreme circumstance, with extreme debt, need a way to get out of that debt w.out considering suicide as the only real option

i don't think a 40% reduction of a ridiculous credit card debt is the least bit unfair -- the credit card companies gambled and took a risk by extending SOOOO much credit and they understood the risk, you are never guaranteed to win every gamble

why am i expected to "man up" when i lose at the dice table but the large corporate gambler gets to whine and moan and bitch and actually be supported by the public when they back a loser?


people whose debt is forgiven ALREADY have to declare the forgiven debt as income on their federal income tax, which i don't think should be the case if the person is a cancer or other serious disease/injury victim

the cost of cancer care is in the six figures, say you can't pay it and that is put on your income tax as say $300K of income, well, they can't pay tax on that

why bother to save someone if you just want to make them a slave for the rest of their life anyway?

[NashVegas]

43. I Finally Broke Down and Got Credit Cards a Year Ago - Just To Build Up a Report

And in the 12 months, even though I usually pay a minimum of $100 to get rid of the bulk of the bills ASAP, I've paid $50+ late fees, twice, because the CC company kept switching the due dates around. Argh. They are bastards.

That said:

if we're going to give free money to people who won't pay their debt,

it's time we give people who pay off their debts all the jobs that pay $80k per year or more!

[Oldtimeralso]

12. Trips to Cancun, my ass!

Plastic was the only way I was able to survive during a period of major sickness and a subsequent disability, yes I am able to make the minimum payments on time but the raising interest rates and penalties for only once going over my limit on one account has now raised all of the rates. The credit card issuers are as ruthless as any of the other greedy piranhas in the world of finance.

[chalky]

16. I hear you, bro...see my post #6.

Why aren't they addressing the REAL issue with credit card usage?
IT'S THE DAMNED BANKS AND THEIR "GOTCHA!" FINANCING THAT NEED TO BE SQUASHED.

[WCGreen]

18. See I was in that same situation, disabling illness, loss of job...

But for everyone of us who has to use a line of credit as a safety net, there are at least one for one people who abuse credit...

To me forgiving credit card debt is a start, but you should have to recognize that debt as income. It's only fair. If you have medical expenses, you could say write of the medical expenses against the cost of the forgiveness. That would be fair.

But I know there are millions of people who went on a free money binge and got in over their head. Should we bail out people who are irresponsible? I think not.

[eilen]

22. I think that lowering the interest rate to a reasonable

nonusurious level might be proper, say 7 or 8% or an option to convert the balances to a loan that does not compound the interest twice a month-- like a car loan or house loan (I forget what those kind of loans are called) at a reasonable rate-- so that people who have found themselves in high credit card debt are not debt slaves for the rest of their lives--they can have a chance to pay it off. For those who could not possibly pay off high debts this way, there should be a bankruptcy option available with a caveat of absolutely no credit or house lien if they own their own home.

I agree that people should pay their debts and I am sure the people who are in debt would like to pay their own off. People generally don't like to go into bankruptcy. We paid off our debts after a long time and it was difficult and very stressful but I feel good about it. If there is any loan forgiveness to be given, I would like to see some more loan forgiveness in the respect to student loans or at least a deal in which they can be forgiven if grads work in high need areas such as healthcare or government/non-profit positions. They do this for teachers who are willing to teach math, science, and special ed but as a nurse, I could get no help unless I went further on and received a bachelor's or master's degree as a NP which is a provider, not the same as a bedside nurse. I also see that many people forgo schooling because of the cost, they just don't want to graduate with so much debt into an uncertain economy that exports well-paying jobs.

I do want to say that I think this should also go for tech/manual jobs such as machinist training, welding, etc. --not just college. We still need people who know how to make and build things here.

[pitohui]

40. forgiven debt IS recognized as income

it's required to be reported on your federal income tax

this has been the case, since, i dunno, at least reagan -- so what's your point again?

there are no welfare queens in cadillacs here, that's a reagan myth

[liberalhistorian]

27. Amen! Hell, they're

even more so! I'm not denying that there are people who abuse the cards and think nothing of it; I've had the misfortune of knowing plenty of them. And you can't reason with them, either, they think they're "entitled." But there are plenty of others for whom that is NOT the case at all and they shouldn't be buried in debt because of illness/injury, job loss or other misfortune, and because others are thoughtless deadbeats.

Even when you're responsible in use and in trying to pay back, the horrendous interest rates, the applying of that raised rate to the ENTIRE balance, and the ridiculous fees for every stupid little thing as well as the deliberate holding of payments so they can be posted after the due date and thus incur a late fee (yes, that is done!) really screws with your ability to pay it off within any reasonable amount of time at all.

[liberalhistorian]

26. I'm sorry, but that's bullshit. My parents had to use

credit cards to live due to my stepdad's illness and having to use most of their savings and assets for it until he finally had to go into a nursing home on Medicaid, for which mom now has to shell out more than half of their monthly pension, which is all she has to live on. And he was only in his late fifties when the illness started.

And his pension was reduced by several hundred dollars a month several years ago due to increased medical premiums because the state teacher's retirement system lost a bundle of money on Enron stocks after they were specifically warned NOT to invest in them. Of course, they still had hundreds of thousands of dollars to spend on art for their headquarters and mega-bonuses for the executive geniuses who got them into the mess in the first place all the while cutting benefits and payments. That reduction really put them in a tight bind.

Mother has never, ever been to Cancun or anywhere else outside the country. Hell, she's never even been able to go to Florida or anything like that and hasn't had a real vacation, going someplace different and far away and relaxing, in forever. Nor will she be able to for a long time to come.

Many people need to put medical expenses on cards in order to even get treatment for an illness or injury, since too many places refuse to treat you now without money upfront and most people simply don't have thousands or tens of thousands of dollars laying around. And they shouldn't have to raid limited retirement funds just to stay healthy. Hubby had to have surgery last year and didn't yet have insurance with his new job, he had to put it all on his card, several thousand dollars. He paid it back within the year, but we had the means to do so. Too many others don't, but they still have to have treatment or a family member does.

The cc industry has done this to themselves with their ridiculous fees, arbitrary raising of interest rates and many other draconian policies that have screwed many responsible people, and not just the deadbeats who used their cards like candy.

[Lydia Leftcoast]

5. People didn't necessarily "misuse" credit cards

A lot of low-income people use credit cards to pay for emergencies, they can't afford to pay the card off right away, another emergency comes up, and compound interest does the rest.

[buddysmellgood]

11. Very true, but lets find a way to help those people before buying dinner, an HDTV and god

knows what else for the person up the street who has a UPS truck at the door every day. Credit cards are different than home loans. Home loans deserve scrutiny.

[liberalhistorian]

28. And many people used their HELOC'S

or refinancing for the very same things you're decrying; the house was like an ATM machine. I don't see you decrying that.

[buddysmellgood]

34. HELOC deserve scrutiny too, but the "crisis" was not formed largely from HELOC abuse.

This is shaping up to be an insane money grab. Maybe I should go out and max out my credit cards. I don't want to miss out on the pinata spoils.

[ET Awful]

20. Okay, put yourself in this situation . . . .

You have an average amount of credit card debt (say $8,000 which is the average per family amount if I'm not mistaken). Due to your excellent history, your interest rate is a low 3.9% You all of a sudden have a medical emergency. You rack up another $10,000 in cc debt.

While taking care of your medical needs, you become past due on your car payment or mortgage by 30-days. This appears on your credit report. When your credit card company sees this late payment (as part of their periodic review of your credit report), it triggers the universal default clause in your agreement.

Now, thanks to that universal default clause, your rate jumps to 29.9% or higher.

Now, through no major mis-use of credit cards, your payments have increased by more than a factor of 10.

Still feel the same?

[buddysmellgood]

35. Yes! As a said in another post. Any benefit given for credit cards needs careful scrutiny.

It's easily done. It's all electronic. Look at any statement. Healthcare would be on the list as something to consider. At the same time, we should not reward poor choices. One has to look at what else people are spending money on. If you're simply living beyond your means and not planning or saving, then you are at fault.

[pitohui]

41. you ARE mistaken, the average credit card debt is $2K

source--msnbc.com, not exactly a bastion of radicalism methinks

the 8K figure is bullshit that they came up with by playing games with the mathematics (pretty much by not figuring in the MILLIONS of american families that have zero credit card debt because they have no credit cards or pay them in full each month, about 40% of all users)

google it yourself don't take my word for it

[ET Awful]

47. Fine, go with that figure if you want to, but the fact remains . . .

if a family budgets for payments on a debt of $2,000 at 3.9% and is suddenly confronted with debt of $12,000 at a rate of 29.9%, they certainly can't afford to meet those new payments, it doesn't necessarily mean they spent irresponsibly or that they're living beyond their means.

[pitohui]

57. with this point i agree

people can't make reasonable budgets if cc co's can invent any and all excuses to jack up the cost of the credit to an unreasonable rate

MY point was that high credit cards are not being run up by people buying teevees -- teevees are cheap -- they are being run up by people who are in the midst of disasters such as a medical crisis, a divorce, or unemployment -- with the most difficult to repay deep debt being incurred when two things happen at one time (such as my friend gets cancer at age38 and while his treatment is covered under his health insurance plan he still can't work for many months, hence has to charge things like FOOD, co pays, and so on and ends up having to declare bankruptcy anyway)

it appears to me that the average american uses credit wisely when things are going well, but when things become intolerable, since we have no real social safety net in this country, families are quickly pushed into running up huge credit card debts

my observation anyway

a $400 teevee from walmart is not what is bankrupting american families

[Orangepeel]

46. correct me if I'm wrong, but I don't think they'd get a break on the amount they purchased

It's superhigh interest and penalties that kill most people. It's not a reward, it's a reduction in the punishment (which doesn't apply to you because if you didn't screw up, you weren't punished).

[medeak]

4. bullshit n/t

[whoneedstickets]

7. Dang, I have a balance of 0, time to run it up!!

Talk about Moral Hazard!

[adarling]

9. you are the new rich person now

i swear that is going to be the new ideal for people, not to be rich but debt free. i am very impressed :)

[whoneedstickets]

14. I am very lucky..

..my wife and I both have good jobs that result from having advanced degrees, that come from having lived in towns with good schools, and parental support from middle/working class families who pushed us to college. Despite our incomes we live modestly (my car is 10years old I won't be getting a new one for at least 5 more I bet), save dutifully, and give to church and charity (though I think we could do more but we have some kids to educate and the cost of college today scares me).

I hope your situation improves. I hope our new president can accelerate that improvement for everyone in your situation.

[sarcasmo]

37. I have been preaching this to my 19 year old college student.

Just because his uncle has a super cool car and a fancy house doesn't mean he is rich, it just means he is in debt up to his eyeballs.

[adarling]

8. I am all for my ass getting my debt reduced

because i pay it on time and my mom taught me you pay your bills before you eat. I would take a bailout right now, mainly cause this has been the year from hell, personally and just i think in general for everyone. I am sick of debt and wish i could pull myself out of it. oh well

[liberalhistorian]

29. I'm sorry, but I'm gonna make sure my family

is fed and sheltered and clothed before worrying about the credit card companies getting their share.

[Demobrat]

17. Chances are 40% of the their "debt"

actually consists of late and overlimit fees and interest that they owe because the credit card company says they do, not because they ever had the use of the money. So sure, let the companies go ahead and forgive it. They never should have been able to charge it in the first place.

[Lydia Leftcoast]

25. Exactly!

Unless you've actually had debt mount up like that, you have NO IDEA.

[dysfunctional press]

21. wow- what a sucker i am, paying my credit card bills off every month...

time for me to start living like a true american, i guess.

CHARGE!....it.

[Lydia Leftcoast]

33. Not everyone can pay off their bills in full every month, even if they want to

If you depend on a car to get to work, and the car needs a new radiator, what do you do?

[dysfunctional press]

45. you get the new radiator, and then pay it off asap...even if that means cheese sandwiches..

and no going out for a month. i've been there, done that.

of course in my case- if it were a radiator, or other car part, first i'd go to the auto boneyard and see if they have what i need, and then pay to take the part off a junked car myself, and then take it home and put it on my car where it was needed. been there done that, too.

[Lydia Leftcoast]

49. It's nice that you're so knowledgeable and have never had

cascading disasters. Other people aren't so lucky, even if they live on cheese sandwiches.

[dysfunctional press]

54. i've definitely had cascading disasters...

but i've lived through them without expecting other people to pay my bills.

[Scout]

51. and if someone is already eating cheese sandwiches, and doesn't go out?

if they can't go the the junk yard without their broken car? if they don't know how to take out and install the radiator?

if people could pay off their credit card balance every month, then maybe they wouldn't be using the credit card in the first place. did that ever occur to you?

must be nice to be able to be so smug and superior.

[dysfunctional press]

53. if people can't pay the balance, they shouldn't use the card.

pretty simple concept, really.

[Lydia Leftcoast]

55. Yeah, except when you have an emergency

:eyes:

[dysfunctional press]

56. and then you pay it off as quickly as you can- generally by curtailing discretionary spending.

nt

[Courtesy Flush]

23. I'd have to see their CC statements first.

Too many charges to Starbucks or casinos, and I'd decline to help. People need to bear the main part of the responsibility for their debt.

I work in social services, and I see people who are in debt, but still keep buying luxuries on credit. Give them options to make paying easier, sure, but don't pay off debts for undisciplined shoppers.

[droidamus2]

24. Different ideas

I think one good thing this does is starting a dialog about what could be done to relieve the pressure on us that have credit card debt. I will put in my 2 cents, instead of weighting the solution to those the 'may' have abused their credit line, how about something that applies across the board like a 12 or 18 month suspension of interest and finance charges. This would allow card holders that are serious about getting out from under them a chance to make substantial payments on the principal or possibly pay them off all together. This way the holder still has to show some responsibility to the debt they incurred and everybody has a chance to take advantage of the solution.

Just had another idea, I wonder if this altruistic desire to 'forgive the debt' is actually the credit card companies way of heading off even more draconian solutions that Congress might come up with. If they fear that Congress may put strong controls on fees, interest rates, who can get cards, etc. maybe they figure by 'forgiving' 40% they can just say they have already done their bit to help out in the financial crisis and these other changes aren't needed. Just a thought.

[closeupready]

30. I think this is what they are going to have to do if they want consumers to start spending again.

Also, they need to rollback changes in the bankruptcy bill of 2005, despite it being Biden's baby.

[hedgehog]

31. The discussion of identifying worthy creditors from spendthrifts misses the point;

so many people owe so much credit card debt that it's bringing the entire economy to a grinding halt. Objectively, the goal isn't to rescue the innocent and punish the wicked, the goal is to keep the economy out of recession or depression!

[Hugin]

32. Well said.

Drag them kicking and screaming back to the topic at hand.

[customerserviceguy]

36. I disagree.

That 40% (or whatever) reduction is going to come at the cost of larger fees for all of us, including those who manage credit wisely.

It really does make sense to separate the people who used cards for genuine need from the party animals when figuring out who to give relief to. But I don't think it's going to happen, this is just pre-election pap to lull the stupid into going ahead and voting for McSame, since they won't "need" President Obama to deliver them from evil.

[pitohui]

42. well you can disagree all you like, the facts are otherwise

those of us who "use credit wisely" don't give a flying fuck HOW HIGH the fees are...because we don't pay them

next question?

you are a person who is himself being victimized but would rather shoot his own foot off than see a cancer patient with unbearable bills get a reduction

this is why human beings suck and why we will destroy ourselves, we must be the most hating and self hating species on the planet

people with debt that can't be paid need some decent alternative, be it a removal of fees, be it a reduced payment, be it access to bankruptcy court -- it's pretty simple if you ask me

in a country where bankruptcy is difficult you would have to be a fool or a delusional idiot to be an entrepreneur, so we are killing innovation w. our puritan ideas about credit -- but maybe it's more important to punish the "wicked" debtor than to move into the future?

sigh

people suck

that's it, that's all

why would i want a sick person dragged down forever by bills just because "well i paid my bills"? it's like wanting a crippled person to have his wheelchair taken away because "well i walk on my own 2 feet!"

[customerserviceguy]

44. Again

I'm all in favor of debt restructuring for people who had problems because of medical bills, etc. I really don't care to give relief (beyond what the bankruptcy act provides) to the people who used them for crazy spending on consumer crap and frivolous things. I had to file bankruptcy myself back in 1996 (from bills relating to trying to get custody of my kids), so I do have sympathy for folks who have genuine hassles from getting caught in the vicious circle of fees on top of fees.

But since that time, I've worked hard at being responsible, whether my income was up or down. I do like the idea of the bill that's working its way through Congress, the credit card industry is engaging in massive abuse with the way they can jack up interest rates for things that seem completely unrelated to responsible management of debt. However, I also know that whatever we sock them with that is more than is needed to fix the excesses will end up biting conscientious people in the ass when they figure out how to get around the rules.

[defendandprotect]

48. Much of this credit card business is entrapment . . . interest way out of hand . . .

If you give a bank $1,000 in savings, they give you very little in return.

Try borrowing that same amount from them!

[Eurobabe]

50. Let's jumpstart that ECONOMY!! WOOHOO nt

[Scout]

52. i'd be happy to pay off what i've actually charged at the interest rate i agreed to

when i signed up for the card. if my payment was late, fine, i pay the late fee, as i agreed to do.

but when they use that as an excuse to jack the interest rate to 29.9% on the ENTIRE balance, not just the late portion, and then report to other cards on which i wasn't late that i'm a bad risk, and then my other interest rates go up too, that pisses me off!

i want my record examined, and the balance due adjusted to the conditions on the agreement i signed. i'm happy to pay what i've actually charged.

[MilesColtrane]

58. Didn't the bankruptcy laws use to allow a form of forgiveness before they were changed in 2005?

It was my understanding that after individual's non-exempt assets were liquidated, and the proceeds paid to his debtors, he was released of any remaining obligations after a period of time.

I think the financial corps. bought new laws from Congress in 2005 that eliminated the "clean slate" provisions.

The banks own you, me, and 90% of everybody in this country. ...and we just gave them a bail out....

[JackRiddler]

59. This thread is unbelievable - just end usury, already...

I have no credit card debt and I do not judge those who do. Quite depends. Some people who earn $100,000 a year marketing plastic puke maybe shouldn't judge others next door who make $30 K and rack up debt. As is pointed out by many, sometimes that debt is for junk, sometimes it's for friggin' chemotherapy. But this is unbelievably off the point.

The FIRST discussion shouldn't be about the moral virtue of debt holders.

The first move to make would be to curb usury. 29.9% interest is usury by any definition prior to the present age. That didn't exist 30 years ago, when damned loan sharks took 20%.

Mandate a restructuring of all credit card debt into the original principal plus a set, permanent, affordable low rate paid on a regular schedule and a cap on late fees. That solves a huge chunk of the problem right there, after that you can see about across the board debt writedowns if they're necessary to keep the economy afloat. A large chunk of this credit was issued by the same banks who lost at the casino and got the bailout, so they need to STFU and take their lumps, they're still being paid (as opposed to having everyone default).

The second discussion needs to be about incomes and distribution of wealth. While the top 1% tripled their share of the pie, real median incomes have not risen in this country for 30 years. This is at the center of what happened: income growth was replaced by the extension of credit.

This "screw the deadbeats" mentality from a lot of people on this thread is actually just more of the same old divide and conquer of the working class.