Card Issuers Plan Debt Forgiveness

Most leading credit card issuers including Capital One Financial Corp., Citigroup Inc., Bank of America Corp., and JP Morgan Chase & Co. represent Financial Services Roundtable. This group helped concoct a debt-relief program. These banks are proposing the following:

• Consumers should be given a five year time frame to pay their remaining balances, instead of the three to six months pay period existing today. Of course, they should first be eligible to qualify for partial debt forgiveness.

• Consumers should not pay taxes on their forgiven debt, as opposed to the existing requirement that taxes should be paid immediately.

To qualify, the cardholder should see a counselor first, who would use a lender-provided criteria in determining how much balance will be waived depending on assets, income, and other financial considerations (usually ranging from 10%-40%). Then, the remaining credit card debt will be interest-free.

The banks would like to test the program on 50,000 consumers. Then, if the feds approve, expand it to millions more. Talbott also mentioned that each lender representative in his group signed off the proposal and a spokesman from the comptroller’s office revealed that the bank’s plan is being considered by the agency.

However, a Consumer Action spokeswoman, Linda Sherry, said that other cardholders may not accept the debt forgiveness given by banks to the people who mishandled their own plastic.
Frankly, this is a valid concern – it’s not fair for banks to easily bail out people who behaved less responsibly.