Banks Want To Forgive Credit Card Debt — But The Government Says No

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.

From Yahoo:

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.

Regulators nix credit card debt forgiveness plan [Yahoo!] (Thanks, J.D.!)
(Photo: afagen )

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  1. mightydarv says:

    Sorry, but any more plans involving extending “helping hands” to those who lived beyond their means while those of us who have scrimped, saved and done without are left by the wayside picking up the checks is just another slap in the face.

    • floraposte says:

      @mightydarv: The problem is that the bailouts might seem unfair, but they’re better than us scrimpers and savers losing our job because nobody can afford to pay us/buy from us anymore.

      • idip says:

        @floraposte: Agreed.

        mightydarv may see it as a slap in the face. But the truth is, people couldn’t afford their minimum payments, so what did CC companies do? Raised their rates and charged them huge fees ($30 dollar late fee, $30 dollar over the limit fee) That adds up fast! You’re now paying over $75 more a month to meet that minimum payment.

        So what happens then? People just stop paying it because they have to choose between paying on their CC (when their credit score is already shot to hell) or feeding their family or paying the electricity/water (which has gone up in many markets).

        What happens when people default? The consumer loses money, the lender loses money, the government loses money. Everyone loses, then the company starts laying off people because it’s not making it’s margins. Then people are out of full time work, can’t buy as much at the store, can’t pay their bills, then the process starts over again, the stores lose money causing layoffs the bill collectors lose money causing layoffs.

        It’s a horribly vicious cycle. If we are all greedy and think that helping hands are WRONG then we’re going to be in a hell of a position. People living within their means AND people not living within their means will all be in trouble…

        I can asure you , there are several people in this country who “Live within their means” who have lost their jobs due do companies or consuumers not having that “helping hand”.

        • NotATool says:

          @idip: That’s great, but the govenment bailing out the banks is just one solution.

          The banks *could* realize they’re about to lose big time and *stop* charging the late fees, high interest, etc., so that they stand a better chance of at least getting their principal back.

          • twophrasebark says:

            @HFC:

            “…helping only those who have been knowingly living beyond their means without helping the rest of us is not acceptable.”

            Mmm hmm. Yeah and how do you determine who has been living beyond their means? You can’t. This is just a euphemism for “I don’t want to help anyone, so I’ll find someway to blame people.”

            Anyway, what is “living beyond your means?” Everyone has a different definition. People love to say “I saw some guy using food stamps and he had a cellphone! He’s not really poor!!!”

            Yeah and maybe he hasn’t seen a dentist in 5 years. And maybe he has to sneak on the subway just to see his mother. Maybe his cellphone is the one thing he has in an otherwise miserable life. Should he throw away his cellphone so you can feel like he’s “appropriately” poor.

            You can’t judge other people’s situations.

            • iceykitsune says:

              @twophrasebark: “living beyond your means” is when one spends more in a year than they make in that same year.

              • verdantpine says:

                @iceykitsune: The problem is that, it’s hard to immediately prove which person living beyond their means is a spendthrift who wasted his money, and which is a saver who just lost her job with no severance, and had to use credit cards to buy groceries.

    • HFC says:

      If they wiped 40% of credit card debt across the board, I would be OK with that. However, along the lines mightydarv and 12-Inch Idongivafuck Sandwich have already stated, helping only those who have been knowingly living beyond their means without helping the rest of us is not acceptable.

  2. 12-Inch Idongivafuck Sandwich says:

    It needs to be all or nothing. Don’t just let people who can’t pay back their credit cards off the hook, let all of us off the hook. And since not everyone has credit card debt, you can’t do that either.

    I would say to give taxpayers one fat check each to pay off debt or whatever, but dumbasses would just buy more stuff instead of paying off debt.

    • Xerloq says:

      @12-Inch Idongivafuck Sandwich: Agreed – do it for all or no one. And do things that promote long term growth. I think we’ve all seen how ineffective the snake-oil bailouts have been at fixing the problem. How many trillions have been spent? what effect has it had? It’s like they’re trying to use duct tape to fix the axle on a speeding tractor-trailer – except the duct-tape doesn’t exist.

      Slash all taxes for everyone (even rich people), cut government spending to bare minimums, and let it crash so the healing can begin.

      • Xay says:

        @Xerloq: Considering that the government employs the most people directly, not even taking to account positions that are paid through government grants – how well do you think the economy will absorb the jump in unemployment and the increased demand for services – like roads, police, and health care?

      • Skybolt says:

        @Xerloq: This is what the government would do if it wanted to guarantee a depression. The bailouts are not working because the money is not being spent productively by the recipients — but the money has probably prevented a further collapse. In a downturn like this, the right move is to increase government spending, not cut it. That is how you get the economy moving again. In the next year the feds need to spend massive amounts of money, and they need to start as soon as possible. Governments are not households. The government can run up a huge debt and deal with it later. Meanwhile, we need direct infrastructure spending, now.

        • Skybolt says:

          @Skybolt: That should be @12-Inch Idongivafuck Sandwich.

          • dragonfire81 says:

            @Skybolt: Do you have any idea how many HUNDREDS OF TRILLIONS of dollars it would cost to cut checks that effectively wiped out the debt of EVERY AMERICAN?

            Sorry but Uncle Sam just doesn’t have that kind of scratch.

            It has to be something more realistic.

            • verdantpine says:

              @dragonfire81: Skybolt, if I inferred correctly, is talking about spending on infrastructure, not just bailing out debt. Perhaps even taking a book from FDR’s Work Progress Administration and the Civilian Conservation Corps – government basically hiring people to work on massive projects, giving them somewhere to sleep, eat, and a small amount of pay. The government could increase loan forgiveness for people who donate their time on certain projects.

    • gafpromise says:

      @12-Inch Idongivafuck Sandwich:
      Actually surveys show that the last stimulus check was mostly used to pay debt (Not stimulate the economy, which was the intention). Surveys asking about a new stimulus check show that many people would do the same thing this time around.

    • Wormfather is Wormfather says:

      @12-Inch Idongivafuck Sandwich: Ya know, that just might fix the economy. Or delay the inevitable. Either way, I like it!

  3. tedyc03 says:

    Why not a tax deduction for debt reduction? Say that any existing debt that is retired in a given time period is deductible, and the amount that is deductible is reduced by any new debt taken on by a consumer during the same period (so you can’t pay off one credit card by moving the balance to another and claim a deduction, or worse, pay off $10,000 in debt and incur $20,000 in a new car loan and still get a deduction).

    Sure, it’d be painful in the short run, but in the long run it might change behavior. Especially if the next act is a removal of all deductions for interest (on homes and student loans).

    • Tux the Penguin says:

      @tedyc03: While its an interesting proposal, it has some major flaws.

      First, how long would we have to hold the debt to get the deduction for paying it off? Because if it is simply measuring the debt at the beginning of the year versus the end, what’s to keep me from “charging” 10k worth of goods that I could have paid cash for, then paying it off Jan 2? On Jan 1 I had 10k of debt and at the end of the year, I’d have 0 – easy 10k deduction. Now imagine that at a grand level.

      Sure, it could only be done every two years (you’d need one year to reset), but it’d open up a whole new level of tax planning…

    • TecmoTech says:

      @tedyc03:

      I have a similar idea to fix this mess:

      1. First, eliminate the $102,000 earnings cap on social security and lower the rate to 4%.
      2. Give EVERYONE $50,000 debt eliminations/tax credit. You can take a combination of debt elimination, tax credit or a little of both. Tax credit carries over for five years.
      3. Use bailout money to stabilize lenders who have to write off the $50k debt.

      This proposal helps EVERYONE immidiately.

      Examples:
      Joe makes $40k and has a mortgage out for $300k. Whoops! He can write that debt down to $250k, refinance and the bank can obtain some $$$ from the bailout package as incentive for cooperation.

      Tom makes $100k and lives in an apartment. He can use that $50k tax credit to offset taxes every year. He will wind up paying a little less in SS taxes as well with a 4% rate vs 6.2% rate, despite the cap being raised.

      Mike makes $270k and owes $40k in credit cards and student loans and mortgage debt. He can write off the $40k, each lender gets their share of bailout pie. He can use the remaining $10k tax credit on his 2009 1040.

      win-win-win

    • Xerloq says:

      @tedyc03: The easiest thing to do to change behavior is to let people keep more of their own money and do what they want with it.

      Here are a couple of interesting quotes from Thomas Jefferson

      The democracy will cease to exist when you take away from those who are willing to work and give to those who would not.

      I think we have more machinery of government than is necessary, too many parasites living on the labor of the industrious.

    • LorneReams says:

      @tedyc03: This is part of the reason why the government is not allowing the companies to do exactly that.

    • Pop Socket says:

      @tedyc03: Once upon a time (just before I started paying taxes), all consumer debt interest payments, not just mortgages, was tax deductible. As soon as that deduction was eliminated, the Home Equity Line of Credit was invented. And then when people default on those, they lose their houses.

      Not to mention that after decades of lobbying, credit card companies got unsecured debt to be be non-dischargeable under bankruptcy. They dug their own hole.

    • heltoupee says:

      @tedyc03: Re-instate debtors’ prison. Make them work their debt off. ;)

  4. Anonymous says:

    I don’t understand – Businesses need to be bailed out, so we forgive their debt by giving them free, tax-payer money.

    Citizens who can’t pay their mortgage get refinanced with lower-than-mine interest rates, and extensions on their foreclosures.

    But people who can’t pay their credit card don’t get a free ride?

    Let’s see some consistency damnit! Free ride for all!

    • Anonymous says:

      @VachelNumsane: How about instead of allocating $700-billion to banks to shore up their issues they issue every taxpaying American a check for $7000 (based on the 2006 stats for tax returns that had a tax liablity) to bailout their struggling finances. I have some credit card debt and a student loan that could definitely benefit from that kind of free cash…and at least I know that it wouldn’t be used to fund company retreats like AIG is. If they wanted insurances it wasn’t being wasted, the government could require proof of debt as a means of claiming the money. It be a logistical nightmare, but no more so than sitting back watching banks spend the cash that was meant to free-up credit flow use it to buy up struggling banks or simply horde it to shore up their own sagging balance sheets.

  5. Hamtronix says:

    It would be life changing if my student loans could be made to go Bye Bye , or even if they were reduced… I have a job and pay every month (and will for the next few decades) and the ability for me to save for a house or anything really while I am still in student debt is very difficult. Not complaining just think that the type of debt should be considered.

    • Anonymous says:

      @Hamtronix:
      Yeah Hamtronix – it would be life changing if someone would forgive the next 26 years of my mortgage too. I have a job and I pay every month, and will for the next 26 years. The ability for me to save for my retirement or my kids education is difficult.

      I’m not complaining, I’m just say that my type of debt should be considered.

      (/end opposing viewpoint in sarcastic format)

    • Boogaloo2 says:

      @Hamtronix: Same here. I have student loans & credit card debt from college and grad school. My parents did not contribute to my educational expenses at all, even though I had to report their income on my financial aid forms.

      My husband has college debt and was also jobless for a year back during the dotcom bubble burst. We’re in our 30s and can’t afford to do anything but pay rent & about $2000/month on debt.

      Everyone who has debt is not someone who has lived beyond their means!

      • FLConsumer says:

        @Boogaloo2: But you did live outside your means — you incurred debt. There were others of us who worked multiple jobs BEFORE entering college + med. school.

        It’s not easy being an “older” student, but knowing I can sleep at night without worrying about my expenses for a few years was worth every 100 hr week I’ve worked in the past.

        • Boogaloo2 says:

          @FLConsumer: Yes I did work while I was in college and had an assistantship while I was in grad school. I entered grad school after working for 3 years and had no credit card debt at all when I did so.

          To your point, I guess I DID live beyond my means by trying to get an education. Maybe in your view I should’ve just worked at McDonald’s and lived in a cardboard box on the street rather than get an education since I couldn’t pay for it outright.

          • Erwos says:

            @Boogaloo2: If your student loans are now a crushing burden, yes, you lived outside your means. “I want an education” does not justify any and all expenses you take.

            I’m getting an MBA. I put it off until I was in a position to pay for it. If I ever get into a position where I’m not able to continue paying for it, I’ll stop until I can do so again.

            • Boogaloo2 says:

              @Erwos: I never said I wanted anyone to forgive this debt. I was simply responding to Hamtronix’s comment about having debt that’s not from buying a house I couldn’t afford, buying flat screen TVs, driving a luxury car, etc.

              I just don’t think that debt from going to college is “living beyond your means” since it is almost impossible to earn a livable wage in this country now without having a college degree. Things are very different now than they were when my parents graduated from high school in the 50s.

              I was the first, and so far, the only person in my family to go to college and I’m very proud of that fact, even if it did leave me in debt.

              • Anonymous says:

                @Boogaloo2: “since it is almost impossible to earn a livable wage in this country without having a college dgree”.

                I fully disagree with your statement. There are plenty of opportunites to make a decent wage without a college degree. I’m currently in the Software industry. Im’ a highschool dropout who got my GED when I was 23. I’m now 25 and I make $60k. 60k is enough for my wife to stay home and take care of my two kids, and life is good.

                Going to college can still be ‘living outside your means’ and isn’t an excuse for racking up bills you can’t pay for. If you can’t pay for it, don’t buy it, college included.

          • FLConsumer says:

            @Boogaloo2: Maybe you missed what I said.

            I SAVED UP before going to school. Undergrad + medical school were saved for BEFORE I set foot in college. It’s called delayed gratification. Not popular with today’s society, but it’s served people well for the past few centuries and still is a sound practice. Everyone in my family has done it this way, as have our parents and their parents.

            I *DO* think going to college without having the money in-hand, or at least a good 75-80% of it in-hand is living beyond one’s means.

            I also take offense to your “since it is almost impossible to earn a livable wage in this country now without having a college degree.” Bullmanure! I was earning $83k while in high school. Six figures wasn’t too far after. < 5 years after high school and I earned my first $1M.

            If you can’t live on six figures, something’s majorly wrong with what you call necessities. Even in NYC, it’s possible to live on $100k/year. Even easier with $200k.

            Before you say I had a cushy job that paid well, it wasn’t. I worked 60-100 hrs/week before entering college. Overtime is where I made the money. When I entered college, I cut that down to 40 hrs/week. I busted my ass back then and still do today.

            @richcreamerybutter: No, actually if anything, student loans would be one of the few things I’d be willing to consider partial relief for. The other would be assistance with medical expenses.

            BUT what students (both current and former) need to realize is that nothing in life is without risk. Getting an education is taking a risk — that 1) you’ll pass 2) that your degree will help you cover your expenses AND turn a profit.

            Most businessmen can tell you plenty of stories where they made bad decisions that caused them to lose their ass.

            There’s no free lunch in anything, even in the laws of physics. Every benefit has an associated risk. Yes, this is the part that college recruiters and society won’t tell you, but it’s there. To date, I still have yet to earn a single cent off my college degrees, but I wasn’t expecting to. I had a far more lucrative career going before I decided to go into medicine. It’s admittedly a terrible business decision for me…but I’m going into medicine because I’m sick and tired of dealing with arrogant doctors who are more worried about their own pocketbooks than my health.

    • richcreamerybutter says:

      @Hamtronix: As can be seen here, people have less sympathy for student loans than those who willfully bought a bunch of useless crap on their credit cards, or a home they couldn’t afford (though I know the lenders are to blame for most of the latter).

      Many of us who had (or still have) student loans were were completely unprotected by certain conditions for the duration of the loans (especially before the implementation of government consolidation). We were handed from company to company with no protection from crippling rates.

      Also, I am still amazed that basically, people can max out credit cards and be eligible for bankruptcy, yet lobbyists have ensured that student loans will never, ever be eligible for the same pardon.

      • Erwos says:

        @richcreamerybutter: Oh, I’m much more sympathetic towards student loans. That doesn’t mean I see the need to do anything about them – especially when they already enjoy substantial government-subsidized advantages.

        The simple fact is this: you went into debt making a bet that the extra money you would earn from your college degree would make it worthwhile to take that loan. Why should I pay for you making a bad bet? This isn’t free money – any money I’m paying for you to get a free education is money that I can’t spend on giving an education to my kids. I would absolutely love to pay for their college education so they could graduate without debt – stop making it harder for me to do so.

  6. nicemarmot617 says:

    Okay Mr Government, I have about $40k in student loans, I mean I’ve been paying them off, but ya know, I’ve just decided you guys should pay that for me instead. After all you are giving money to all these people who have indicated they wouldn’t know how to spend it if Warren Buffet kicked them in the head, why can’t I have some too?

    • concordia says:

      @nicemarmot617: Totally seconded.

      Mr. Government, just think of how much money I’d have used to stimulate the economy without the albatross of student loans around my neck!

      Why, if I hadn’t been paying back my student loans maybe I could have A) been able to buy a house and b) not defaulted on my mortgage! Imagine that!

      • lincolnparadox says:

        @concordia: Thirded.

        I’m dumping about 10% of my annual into student loan payoffs. I’d be in much better shape if I didn’t have to tithe to the god of education.

  7. Blueskylaw says:

    .

  8. Blueskylaw says:

    “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.”

    That means that the banks would not pay income tax for a verrrrrrrrrrrry long time. I knew that had some other motive than feeling sorry for me.

    • ADismalScience says:

      @Blueskylaw:

      It’s a reasonably good compromise – banks will absorb the losses on credit in exchange for some tax relief. But our government is so addicted to spending that it’s unwilling to surrender revenue to help taxpayers, largely because of cascading bailouts and wanton spending on defense, entitlements, etc. Besides, there’s no free lunch – they’d essentially be robbing their debt relief from our currency valuation due to our budget shortfalls. Which, you guessed it, hurts everyone with actual cash.

    • VeeKaChu says:

      @Blueskylaw:Oh my gosh, your theory sounds like it might be some of that widely renowned “information the credit card companies DON’T want you to know!” Keep it under your hat… remember they know where you live!

  9. Trai_Dep says:

    While it might feel darned nice for spendthrifts and irresponsibles to get carted to the labor farms to work off their debt, banks’ poorly regulated, wanton borrowing has created a suck-hole so large that the global economy is circling the drain.
    This mess is bigger than my smug sense of entitled schadenfreude.
    Damn unregulated markets – to Hell! – for taking this away from me. Bast*rds.

  10. AldisCabango says:

    I must be missing something here. If the bank writes of the debt, because it is fogiven, then no income would be earned. If no income is earned on a forgiven debt, what takes would be owed?

  11. mmmsoap says:

    This frustrates me immensely.

    On the one hand, I have sympathy for people who were sucked in by deceptive credit card practices. Honestly, you have to be pretty well educated to stay ahead of some of the sleazy CC companies, and it’s pretty easy to be taken in. For example, it’s a fair assumption, all other things being equal, that paying the minimum balance on your credit card will get you somewhere. That’s what you do with a mortgage or car loan, and I can see how people think that it would extend to other types of credit.

    I have a feeling that the 40% number came from a calculation of the average amount of debt due to accumulated interest. Credit card interest rates are ridiculously high. I also suspect that credit card companies are worried that customers are going to default and they’ll lose out an all of their money, and this is an effort to regain at least some.

    On the other hand, I hate all this bailout crap. When are we going hold people (and companies, for that matter) responsible for their own mistakes? You bought a house you can’t afford, not my problem. You built cars that people don’t want, not my problem. You lived beyond your means, not my problem.

    As others have said, I have finally (for the last 6 months) been able to get myself out from under CC debt accumulated when I didn’t know better. I scrimp, I choose between luxuries, I clip coupons, etc. This is how we get into credit crises in the first place — by teaching people that their mistakes will be taken care of anyway, and that it’s not worth the trouble to pinch pennies.

    • jeffs3rd says:

      @mmmsoap: On the other hand, I hate all this bailout crap. When are we going hold people (and companies, for that matter) responsible for their own mistakes? You bought a house you can’t afford, not my problem. You built cars that people don’t want, not my problem. You lived beyond your means, not my problem.

      I completely agree with your statement here.

      If you willingly took on debt you couldn’t afford I think you need to learn how to live with those circumstances. It shouldn’t be my responsibility as a tax payer to help you out with that when I, as a tight ass, have lived within my means, scrimped and saved, and lived a modest life. It sends those in severe debt the wrong message that they will eventually have their debt forgiven.

      To quote Airplane “… they bought their tickets, they knew what they were getting into. I say, let ‘em crash.”

    • heltoupee says:

      @mmmsoap: Sucks being the smart, responsible one, doesn’t it?

  12. Saboth says:

    Once again our society caters to the idiots and lazy bums while the responsible people are left holding the tab. Wish I had free healthcare, got huge tax rebates when I pay no taxes, had my bad mortgage handled by the government and had my credit card debt wiped out after buying the biggest LCD TV money can buy.

  13. holocron says:

    Step one to help all this along:

    Enact a new Tax CREDIT for annual student loan payments.

    • Erwos says:

      @holocron: Why should everyone else pay for your college education, especially when such a program would only make that education more expensive?

    • mmmsoap says:

      @heltoupee: Indeed it does.

      I’m a high school math teacher, and we’ve spent the last month doing exponential growth and interest rates, and in the process they’ve all gotten quite an education about unhealthy debts. I wish I had known this stuff before I got into credit card trouble, and mine wasn’t even that bad. At least they’re headed to college next year more aware of the situation.

  14. Anonymous says:

    The best way is to lock the debt, for example a person with 10K in credicard debt is going to take forever to pay it off if you pay the minimum.
    Why not locking the time of your debt say 5 years at a fixed interest. that’s better than forgiving any debts or bailing credit card companies

    • humperdinck says:

      @HubertCormorant: This is not a bad idea. I’ve got credit card debt (to all you holier-than-thou people: some of us learned financial responsibility the hard way). I don’t want to get out of paying it back, I would just like a reasonable way to do so.

      My debt got worse when all of a sudden interest rates skyrocketed and my monthly minimums doubled (or tripled). When you are not budgeted for such a surprise bitchslap and find yourself having to unexpectedly pay hundreds more every month, it makes the problem worse. The debt is harder to pay back, and you accumulate even more debt as you struggle to even meet the newly-exorbitant minimums.

      I’m not looking for a bailout; I just want a decent, regulated way to pay it back.

  15. dwhuntley says:

    Here’s an idea. Why not tax the crap out of credit card debt and take that out of there pay check. So that way when they default on there credit cards, we have a surplus of money to pay for it. Not to mention this would reward any behavior to NOT run up your credit card bill.

  16. TexasBelle says:

    Speaking as someone who sacrificed quite a bit (including relocating for a better-paying job) to pay off her credit card debt, I can’t say I feel too sorry about this one. I know how debilitating the debt can be, and I do feel for the people stuck with it. I just don’t think mass handouts are the way to go — whether those handouts go to individuals, banks, or auto manufacturers.

  17. Illusio26 says:

    I’m tired of this crap too. Bad companies should be allowed to fail. People who spend way above their means need to learn a lesson the hard way. I have sympathy for someone who had an accident or something and is stuck with high bills. But people who got in too deep trying to keep up with the Joneses are reaping what they sow. A few years ago I finally got myself out of 8k in credit card debit. I busted my ass to do it too.

    If they are going to give free handouts by wiping out peoples CC debt, then I want a check for the average amount people’s debt are being cleared.

  18. TemporaryError says:

    So, if this plan came to be, what would I have to do to negate my qualifications for existing repayment plans (due to youthful folly as well as loss of job, I accrued significant CC debt. I went ahead and did the responsible thing and made an arrangement w/a nonprofit.) Would I have to quit my current job and then quit making my payments to the non profit? Seem like even if this went through it would encourage more irresponsible behavior from those in situations like mine.

  19. kwsventures says:

    How to avoid credit card debt? Don’t use credit cards. Cash only. Can’t afford stuff you want. Save. Get a 2nd job (darn, you might not be able to waste time watching your favorite mindless TV shows that don’t pay you to watch). Find a new job. Get training for a new job or skill. Jeez, do I have to all the thinking here? Anything else is an excuse to spend what you don’t have. Boom. Done.

  20. LorraineEgonon says:

    How about them credit card companies take their interest rates down to 1-5% instead of pushing them over 20%? Maybe they’ll see less folks defaulting on them…

    • Erwos says:

      @LorraineEgonon: If you ever wanted to see consumer credit completely evaporate, that’s one way of handling it. Those high interest rates are what are supposed to be compensating for the high default rates.

      My guess is that the companies are only keeping them at 20%+ and not 50%+ because they know there would be Congressional backlash.

  21. bpclay says:

    I think the problem with this type of problem, as many people have pointed out, is it’s not fair to the population. Since some people don’t have credit cards/credit card debt (whether by personal choice or by inability to attain credit), the bailout is only helping a portion of the population.

    I see two potential options (not saying they are great, just options) -

    1) Another “tax refund” to stimulate the economy. Those that have credit card debt can elect to pay it (or catch up on the mortgage), while those that don’t can save it or stimulate the economy by buying more crap. I’m not sure though, if our govt really needs to be kicking out a few more billion in cash right now.

    2) If credit card companies are really concerned about losing on principle and interest (as someone else suggested in the comments), why don’t you offer a compromise to the lender and borrower and cancel the revolving line of credit and covert it to a loan. The term of the loan could be set by parameters (amt of debt, borrowers ability to re-pay, etc); the interest rate should be variable (prime + x% with a cap on the max rate)….you could make the x% lower for those that accept shorter repayment terms. Once the loan is paid off, the borrower is in the clear, the lender has been repaid in full (with a discounted amt of interest), and the line of credit is closed.

    Like i said, not sure either is ideal, but I personally would lean towards #2….it puts responsibility on borrowers to pay their debt, allows lenders to recoup their money (even at a discount, it’s better than nothing), and it keeps the govt out of another expensive bailout.

    Thoughts?

    • Erwos says:

      @bpclay: They’ve already proven themselves bad debtors. Why would changing the terms of the debt do anything to solve that problem?

      • bpclay says:

        @Erwos: My thought is that if you reduce the interest rate, and extend a payment plan (2-10 years) then that should give the debtor manageable payments; in addition, you are killing that line of credit. I’m sure that the lender will report their “repayment plan” to the credit bureaus, which will probably restrict them from getting additional credit in the near-term.

        I do, though, think that a provision would have to be made for those that sign up for this and stop making their payments….maybe retro-actively assessing interest at the original rate?

        Like i said in the original post, i didn’t say it was a great idea, but it seems to help consumers and the “industry” solve some issues without gov’t intervention.

  22. Anonymous says:

    Can’t log in for some reason.

    Anyway, I’m one of those people that didn’t have credit, that went without and paid what I could afford. And I’d like to indulge in feeling the same way most of you do: that those who had all the extras I couldn’t afford while I went without should suffer. By all rules of fairness, they probably should.

    But you’re all missing the bigger picture. Those people were/are consumers, and they have a lot less or nothing to spend now. It will affect you.

    Work at a restaurant? People who used to be able to eat at your place but now can’t due to overwhelming debt (of their own making) won’t be eating out anymore. Eventually, your employer will have to either go out of business, or at least cut staff. You’re out of a job.

    Work at a manufacturer? Same thing. People can’t afford to buy your goods. Service provider? Same thing.

    There are very few industries that will be immune to this. It’s a short-sighted, naive view to say “doesn’t affect me–let ‘em burn”.

    LaraAtHom

    • Illusio26 says:

      @LeeFunguar: At the same time, is it the government’s responsibility to bail out people who get themselves into this kind of trouble? They are doing it with our money. People have to be allowed to fail or they won’t learn. I don’t think giving everyone a “do over” is going to solve anything.

      I always heard that you should never pay off your credit card balance with a Home Equity loan. They say that the majority of those people that do, just rack up more CC debt in a few years.

      People who don’t learn from history are doomed to repeat it.

  23. zarex42 says:

    This is pretty unfair to those of us who didn’t overspend, and were able to manage our debt properly. It’s offensive to see people rewarded for irresponsible behavior, while punishing the rest of us.

  24. snowburnt says:

    I would rather they help the homeowners than the credit card holders. And by helping I mean don’t forgive any debt, just renegotiate the rates and set it 30 year fixed. Also tag on a 5% prepayment penalty (soft or hard) for at least 5 years to make sure these people really want to keep their homes.

  25. Anonymous says:

    The government needs to do something to reign in the double-fisted greed at the credit card companies. They are asking for handouts from the government while simultaneously jacking interest rates into the stratosphere for people that have not defaulted. How am I supposed to pay back my debt at 28% interest?

    I would propose that the government requires all CC debt be capped at 5% interest. Then people’s payments might actually go to reducing debt instead of prolonging it.

  26. geekfather says:

    Figures.

    I just paid off more than $8 grand in CC debt over the last two years.

  27. postnocomments says:

    If banks are willing to forgive 40% of credit card debt, is possibly because they already milked the debtors enough already.

  28. wjamny says:

    What’s needed is a program that helps consumers pay off this debt without punishing them further with high interest rates and fees, and does not reward the CC companies for their sleazy tactics.

    How about allowing consumers to voluntarily transfer existing cc debt into a government program that purchases the principal portion only and then charges a fair – say 6-8% – interest rate until paid? The catch would be that as part of the program the consumer’s credit is frozen, meaning no new credit and transferred accounts must be closed (there could be an exception made for collateralized purchases – home, car). Repayment would be made via payroll reduction and any tax refunds would go towards repayment of the debt.

    In addition, the interest, fees, and penalties on the books of the CC companies should be relieved (written off) with no offsetting tax reduction for the bank. We should not be rewarding the banks for unfair practices, giving people an insane amount of credit, and then putting those customers into an endless cycle of debt with high interest rates, penalties, and fees. They need to take some responsibility for this mess, if they granted credit based upon means of repaying some of this could have been avoided.

    Yes, many consumers only have themselves to blame for this mess and they should not be relieved of repaying the purchases they made, however please tell me how a 30% interest rate is fair (and not usury)? Why is it ok to raise a rate on one card that’s paid on time, when someone is a day late on another card? Why would someone that makes $50K have over $20K of credit available? The banks’ greed caused this and they should not be rewarded.

    [I apologize for rambling]

    • motojen says:

      @wjmany: Glad to see I’m not the only one that thinks this idea is a good one. Usually I hate the idea of yet another government program but in this case I’d make an exception.

      I’d love to just say eff the people who lived outside their means but if they’re screwed them in screwed. I resent it but that doesn’t make it any less true.

    • julienne says:

      @wjmany: The first part of your proposal is already on the books – it’s called Chapter 13 bankruptcy.

      What I gathered from the article is that the Fed didn’t want banks to misrepresent their actual losses to investors. I’m guessing letting taxpayers off the hook for taxes on the cancellation of indebtedness income (the 1099) didn’t appeal to them either.

      Bankruptcy exists for a reason. Good businesses can reorganize under Chapter 11, and the bad ones can go under in a Chapter 7 liquidation. Throwing bailout money at bad businesses is insanity.

      I’ll quit beating the dead horse now.

  29. Burgandy says:

    If anyone feels bad for any of the banks, please do us all a favor and watch the Maxed Out. It is a great documentary that will clear up why the banks go after certain people with less than stellar credit ratings. It is facinating and disguisting at the same time. This needs to be a manditory viewing for all before being allowed to graduate high school or apply for a credit card.

  30. alstein says:

    I think we need people to suffer under this debt. Let them declare bankruptcy, let the CC companies suffer.

    The rest of the world will suffer more then us, and we will recover eventually, and if this ends in deflation, the scrimpers and savers will be even better off.

  31. thatsnotfab says:

    I’m actually, for the most part, happy to hear it got shot down. I say “for the most part” because I’m in the hole about $23,000 (all credit card debt) and while it sounds like a impulsive spender’s wet dream to have 40% of her debt gone, it’s by no means logical or fair to fellow tax payers. (I probably wouldn’t qualify any the forgiveness anyway, so it’s kind of a moot point. Anywho.)

    I dug my own hole and I’ve signed up with a debt management program to help dig myself out. I’m grateful for the opportunity to have my rates lowered, but that’s all I (and others) deserve at this point.

  32. howie_in_az says:

    So the government and banks are basically saying it’s completely OK for me to go out and buy things that I know I can’t afford because eventually Uncle Sam will come in and save the day by paying it off for me.

    Ferrari store, here I come! They come with iPod Touches now!

  33. Elcheecho says:

    @tedyc03: Any tax-based solution would involve a payment transfer from people who aren’t deep in debt to people who are.

    If a particular bank swallows the loss, they might try to get it back by raising their rates, but only for people who use their services–and even then, people like me who pay in full every month aren’t affected.

    If you get a tax break for paying down debt, that’s taking money from my pocket.

  34. AtomicPlayboy says:

    Here’s a wild idea: how about letting the credit card companies suck it up and operate at a loss for a while? Surely, after charging the usury-level interest rates they have for the past several years, they’ve got some capital to help them weather the storm, no? They can take the time to lick their wounds and rethink their creditor qualification processes and business models as they are forced to lower their profit margins or take losses rather than suffer from massive defaults.

    The world isn’t going to end because of the credit meltdown. The next year or so is going to be relatively painful, but from it many valuable lessons about personal and corporate finance will (hopefully) be learned. The emerging populace will hold a much more responsible view of saving and expenditure which will be good for everyone, and for the country.

  35. Anonymous says:

    How about instead of full on money reimbursement, all credit card companies have an immediate slash in interest rates for everyone? This helps the people who saved, and the people who didn’t.

    How about all interest goes down to 5%? Surely that’d relieve a lot of people.

  36. Trencher93 says:

    Man, I’m living wrong. I pay off my credit card every month. I pay ahead on my mortgage. All I have to show for it is declining property values, a 401k that has earned ABSOLUTELY NOTHING in 10 years (what happened to the compound growth? I have exactly what I put in) and a few frugal luxuries. I should have been living it up, preparing for the bailout. All I’ve done over the decade and a half of working is pay for other people’s lifestyles.

  37. consumerd says:

    I keep wondering exactly how much “responsibility” I really need to have anymore.

  38. Trotsky says:

    Heh, you know, we used the credit card as a necessary evil. Student loans? Yes, I wanted to better myself. I don’t have a big screen LCD TV and a new car. Hell, I do all the shit all of the uppity folks on here crow about. And you know what? I make decent money and I’m still screwed. I did everything I was supposed to do and I am still living paycheck to fucking paycheck. Screw the cc companies. Screw students loans. These banks and other financial institutions get bailed out, well, you know what? I wanted bailed out too. Sorry. I used to have an attitude that emphasized financial responsibility, but I’m done with that now. After seeing how these places operate and how terribly hypocritical they are, I’m done.
    Oh, sure, I’ll still live within my means. In fact, I’ll even cut up the one credit card we have. But I want a bailout.
    It’s only fair.

  39. pal003 says:

    This suggestion about consumer debt brings out quite the discussion.

    A banking person told me that if we had just let the banks file for bankruptcy (no bailout money) – then much of this consumer debt would have been written off anyway – and debts charged off.

    So instead, we taxpayers give Wall Street big bucks to save them – but consumers get nothing???

    Why not at least make those banks that got bailout money have to reduce all credit card interest rates to 3% for 5 years – and no fees allowed. That allows people to pay down their debt at a reasonable interest rate, and save their credit.

  40. TecmoTech says:

    @Elcheecho:

    Well, I would use this stupid bailout $$$ for it. I would rather use the money on people than companies.

    The SS adjustment would provide more tax revenue so that would help too.

    Tax credits also don’t take money from the current pool, they just reduce future income.

    • Elcheecho says:

      @TecmoTech:

      1. bailout money is from the general fund. still a transfer.

      2. i have no idea how the ss adjustment will shift the payments, but there’s no reason to suspect that it won’t benefit debtors at the expense of non-debtors.

      3. i don’t think i understand your third point.

  41. mountaindew says:

    I personally know someone who maxed out on a $5000 credit card and couldn’t pay. He threatened to file for bankruptcy when the collection agency called, and they told him they would write the balance off if he could at least pay $500 – and he did, with smiles! I don’t understand how some people can be so irresponsible.

  42. Anonymous says:

    To Iceykitsune:

    “”living beyond your means” is when one spends more in a year than they make in that same year. “

    Well that is all well and good, but what about when a shock ocurs, like your employer going belly up, and being unable to find a job in your area or field for no more than less than half of your previous salary? Or not wanting to lose the house, and wanting to keep health insurance for the family of four?

    That is EXACTLY what happened to me. My company went belly up, it took me 13 months to find new employment making close to my old salary, and in the meantime, I had to take a job (Home Depot) paying 1/4 of my previous salary, with NO benefits. After my 4 months of float cash were gone, I used the credit card to pay the $1200 a month health insurance, and the $1100 a month mortgage. So, during that time, I rang up what I consider substantial credit card debt. or 7*2300. It actually ended up being around $14,000 accumulated over the course of the year.

    And given that one of my children has special learning needs(special education), moving was not an option.

    And now three years later, I am still paying it back, as much as I can afford each month (usually twice to three times the minimum payment). I bet you will find hundreds if not thousands of people who have experienced similar situations and had to use credit cards for things like medical and mortgage, not “living beyond their means”

    • Ubik2501 says:

      @WebsterElipster: I found myself in the same situation last year, and racked up a few thousand paying the obscene COBRA fees and getting by. I have friends who have experienced the same thing, and others who’ve been getting by on the bare necessities for years, and you know what? NONE of them own a flatscreen TV or any of the other “welfare queen” strawmen that keep getting posted here. It’s infuriating for those who have encountered unfortunate circumstances or who have struggled for years, to be equated to the lazy jackholes who did make ridiculous, selfish and short-sighted decisions. Should those in legitimately bad circumstances have to suffer for the irresponsibility of others?

      Not everything is black-and-white, folks, especially not in economics.

  43. Anonymous says:

    It was a bad plan from the very start and actually did little to help consumers. See http://getoutofdebt.org/4213/government-kills-debt-write-off-and-40-debt-elimination-plan

  44. darkryd says:

    Congress needs to think three or four rungs further up the ladder to address the major illness and not just the symptoms of the financial crisis.

  45. synergy says:

    This is why I made sure all my credit cards were paid off by April. I could’ve saved that money for a house down payment or gone on vacations or who knows what, but I did the responsible thing. Now thankfully I don’t have to worry about them because I knew that the economy was going to go to hell before the end of this year.

  46. Anonymous says:

    I’d gladly consider a bailout for anyone holding credit card debt to pay for medical bills or prescriptions… Something tells me there’s a few billion $$ worth of Best Buy, Circuit City, Walt Disney and Outback Steakhouse charges out there.

    You bought the crap, you’re using the crap… you pay for the crap.