U.S. rejects proposal to forgive credit card debt

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?

Photo credit: Justin Sullivan / Getty Images

Comments

[Martin Friedlander]

What is wrong with this Treasury Department? Who is counseling Paulson. He is not an idea man. He is a businessman pure and simple. He is one of those that was responsible for over levering the derivatives. It looks like we have to wait until we have a new Congress and Obama is sworn in as President. There are so many finacial moves that have to be taken in order to avoid a 1930s depression. Paulson's advisors seem to be looking forward to this meltdown so that after Paulson leaves office in January he can buy up all of these equities at very cheap prices.

We have to write down student loans, credit card debt, mortgage debt, and reform the regressive bankruptcy code so that we can run pre packages chapter 11 plans through bankruptcy, so that these insolvent corporations can take advantage of the automatic stay, while debt is exchanged for equity to have a clean balance sheet, new executives, and regulated executive compensation. While these corporations are in bankruptcy, executive compensation will be subject to the approval of the court. If PG&E can proceed through a successful bankruptcy so can our auto industry and banks.

Martin S. Friedlander, Esq.
Bankruptcy Lawyer
www.freedompost.typepad.com

[aj]

if peolple took theire heads out of their asses they would see that credit card lead to hell with no way out...use cash people and stop living like your rich!!!

[Phil Weeks]

Instead of forgiving 40% of the debt, we should be using a portion of the taxpayers 700b loaned to the government. If credit card debt was not forgiven but actually paid off, using proceeds from the 700b, banks would have debt off their books, consumers would have more discretionary cash. Simple