The next wave of the credit crisis — the skyrocketing defaults on credit cards — is coming in and odd alliances are being formed. The Consumer Federation of America, along with the Financial Services Roundtable ( a self-described “major player on Capitol Hill and with the regulators” which represents the securities, investment, insurance and banking industries) has requested a “special program that would allow as much as 40 percent of credit card debt to be forgiven for consumers who don’t qualify for existing repayment plans.”
The Office of the Comptroller of the Currency, which regulates national banks, said no to the plan. The sticking point was a clause that would let banks defer paying income tax on the forgiven debt until the rest of the debt was paid off.
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.
Credit card charge-offs are up 48% from last year.