A rant against the credit card debt-forgiveness plan
Posted
Nov 10 2008, 08:24 PM
by
Karen Datko
Rating:
A consumer group has joined with big financial companies to ask the government to approve a plan that would let overextended credit card users off the hook for up to 40% of what they owe.
"What? Are you kidding me?" Aryn writes at Sound Money Matters. She can understand a bailout plan for struggling homeowners because some people were misled by mortgage brokers, but, she adds, "no one was forced to use a credit card."
An Associated Press article details the proposal by the Consumer Federation of America and the Financial Services Roundtable. It says, in part:
Nearly all the biggest credit card banks have agreed to a temporary pilot program in which lenders would forgive as much as 40% of the amount consumers owe, allowing them to pay back the remainder over time, they 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.
The pilot program could help an estimated 50,000 people now in dire straits, and perhaps many more. How much debt would be forgiven -- between 10% and 40% -- would be based on the individual case after each person enrolled in credit counseling.
What's in it for the credit card issuers, who are facing soaring credit card charge-off rates? MSN Money's Liz Pullium Weston explains in an article called "Feel like a sucker? You're not alone," "The issuers figure getting something out of these debtors is better than getting nothing if they stop paying or file for bankruptcy."
There are other benefits as well. Consumers would have five years to pay off the unforgiven debt -- interest-free, by the way -- instead of several months, and would not have to pay taxes on the forgiven portion until the remaining debt is paid off. Banks could delay writing off the losses for five years.
Aryn has an opinion about all of that. "We already have a system to forgive credit card debt. They call it bankruptcy," she says in her post. The plan isn't "fair to those of us who are responsible with our money, and it sends the wrong message to banks and people who choose not to be."
On the other hand, all of these financial woes are related and are driving the entire economy down, Weston says. David Lazarus at the Los Angeles Times agrees that the plan may seem unfair. "Yet these are indeed extraordinary times. And we'll all benefit economically if consumers get back on their feet as quickly as possible," he writes.
