U.S. rejects proposal to forgive credit card debt
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The feds smacked banks in the head early today, warning them to get more aggressive with lending to ease the credit crunch.
And a few hours later, we hear this, via the Associated Press:
Federal bank regulators have rejected a request by banks and consumer advocates for a program to let lenders forgive huge portions of credit card debt. The Office of the Comptroller of the Currency rejected the request for a special program that would allow as much as 40% of credit card debt to be forgiven for consumers who don’t qualify for existing repayment plans. An unusual alliance of financial industry interests and consumer advocates, represented by the Financial Services Roundtable and the Consumer Federation of America, made the request to the Treasury Department agency on Oct. 29.
So what’s the problem with the card-debt forgiveness plan? The banks would get an accounting benefit, allowing them to defer for several years taking write-offs for the amount they forgive.
That didn’t sit well with the Treasury, according to AP:
The agency ‘does not consider any plan that defers the timely recognition of loss as prudent, and any such proposal cannot be viewed favorably by us,’ Timothy Long, senior deputy comptroller for bank supervision policy, said in a letter to the two groups dated Monday and made public Wednesday. ‘The timely identification, reporting and management of credit losses, along with adequate loan-loss reserves and capital levels, provide the public with ... confidence’ in the banking system, Long wrote.
You have to wonder if he was able to write that with a straight face.
The feds are haranguing banks to modify mortgage loans, as noted here on Tuesday. Yet they’re drawing the line on credit card debt because of their commitment to accounting orthodoxy?