WORLD> America
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WORLD> America
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Banks asking for credit card debt forgiveness
(Agencies)
Updated: 2008-10-31 09:11 Under the groups' proposal to US Comptroller of the Currency John Dugan, whose Treasury Department agency oversees national banks, a pilot project would allow big credit card companies to sharply reduce the amounts owed by consumers in over their heads who don't qualify for the repayment plans now available.
Nearly all the biggest credit card banks have agreed to such a pilot program in which lenders would forgive as much as 40 percent of the amount consumers owe, allowing them to pay back the remainder over time. The test program could reach as many as 50,000 borrowers, said Scott Talbott, senior vice president at the Roundtable. Borrowers would have to be in a counseling program for their credit card debt. The amount of debt to be forgiven would be determined case by case, depending on the borrower's financial condition; those receiving close to the maximum forgiveness level would be nearing a personal bankruptcy filing. And there would be a tax benefit. Borrowers would be able to defer payment of income taxes they owe on the forgiven part of the debt until after the remainder was paid off. The lenders could wait until then to book their loss on the forgiven debt. "Both parties win," Talbott said. Current government rules don't allow lenders to offer repayment plans that reduce the amount of principal owed and borrowers to repay the balance over a period of several years. In cases where the principal can be reduced, under credit card settlements, borrowers normally are required to pay off the remainder over months rather than years. Kevin Mukri, a spokesman for the comptroller's office, had no immediate comment on the new proposal Thursday. Peter Garuccio, a spokesman for the American Bankers Association, also declined to comment. June Selby, who nearly filed for bankruptcy three years ago when she was buried under nearly $32,000 in school loans, saw both sides but said she didn't like the idea of anyone getting a free ride. Selby, 60, worked with credit counselors to pay off nearly half the balance and is on track to be debt free by 2011. "If (the proposal) makes it possible to maintain a sense of integrity and pay back debt without going into bankruptcy, that's one thing," said Selby, a certified nurse in Lawrenceville, Ga. But she said she was against the idea of a free handout for people who've simply been irresponsible. "There just has to be some accountability. Nobody is bailing me out. I had to work very hard to keep from bankruptcy and foreclosure," she said. |
