Banks Are 'Quietly' Negotiating Credit Card Debt, WashPo Says
The Washington Post says banks have grown more sympathetic to stressed-out consumers and are now more lenient when it comes down to renegotiating interest rates and minimum payments. Banks aren't out there advertising their willingness to bend, but they're more willing to listen, the story says.
The move isn't due to compassion, but rather fear of getting bilked out of money. If you're able to negotiate a sweeter deal with your credit card bank, thank the kind folks who decided not to pay their bills.
From the story:
"Issuers are looking to get something as opposed to nothing," said David Robertson, publisher of the Nilson Report, which monitors the industry.
Most card issuers are unwilling to talk about the practice for fear that they will be swamped with requests from people who do have the funds to pay their bills. But industry executives confirmed that the practice is becoming more common as card issuers face a record percentage of charge-offs, giving up on collecting debts that consumers never repay. The charge-off rate on U.S. cards for July was 10.52 percent of balances, according to Moody's, which expects it to reach at least 12 percent in the middle of next year.
This is one instance in which the proverbial ants have the grasshoppers to thank for buying stuff they can't afford.
Banks Ease Burden Of Credit Card Debt [Washington Post]
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Comments:
Thank you kind folks who decided not to pay your bills!
This is one instance in which the proverbial ants have the grasshoppers to thank for buying stuff they can't afford.
-What about the folks who lost their jobs?(and had little-no emergency fund)
*no, I am not one of them*
Don't worry, I'm sure obama will come up with some plan so us taxpayers pay your bills, just like we paid for your houses and cars.
@lannister80:
That's why bankruptcy was invented: to keep people from turning to the black market and/or bartering, which completely removes them from the general economy.
@pecan 3.14159265: Very good point here Pecan, in total agreement.
Not to mention that Samuel L. Jackson can be a tough SOB who carries a wallet that says BAD MOTHER F***ER and who would want to negotiate with THAT?
I closed a credit card yesterday and they didn't even argue with me. It was... unsettling.
@pandroid: I closed a BoA card a several years ago and I did it through an automated system. But when I closed a Capital One card around the same time, they tried to covince me not to with a live person.
So, a CC company's response to you closing your account may not have anything to do with the current times.
@pandroid: One of my credit card companies closed a card due to lack of use. But recently when opening a checking account the woman really tried to get me to accept a credit card offer. Then a week later she personally called me at home and asked me again.
@lannister80: Ok, so in order to get out of the recession, we need to again start doing all the stuff that caused this mess in the first place?
Those who do not learn from the past...
The banks are figuring out that 50% of something is a lot better than 100% of nothing. You notice that they're requiring the card holder to close the card so they're reducing their future risk. I'm sure the card holder will take a significant hit on his credit score, but no worse than with a total writeoff. The bank's alternative is to push the debtors into bankruptcy and that way the banks will lose the entire amount.
First people started losing their homes, and the government said to the people "We will help you." Then the car dealers started going under, and the government said "We will help you." Then the people started drowngin in consumer debt...wait, where's the government to bail us out now?
@H3ion: Exactly, it looks as if common sense may finally be setting in for banks. I still don't understand why they aren't doing this more with their ARM mortgages. If they could afford it at a certain interest rate, but after the rate increase they are being foreclosed, why not set them up with a fixed rate they can afford? If I were a bank, I'd rather have a customers still making their mortgage payments then be stuck with a house you can't sell and is worth much less than the balance of the mortgage. I don't know. Maybe asking for banks to use common sense is too much.
@pandroid: I have a card with nothing on it, and C1 asked me to leave it open, even though unused, as it will help my credit rating.
Yet, they decided to jack up my Platinum version to 22% on a balance of $800.
I am deciding not to pay, let it go to collection. Then, they take $400. Will it eff up my rating? Who cares!
@henrygates: I really want to cancel my very first card, but I'm sure it'll shorten my credit history by a year or two. It's just a ridiculously low-limit card and the company refuses to increase the limit, so I have no use for it.
@pecan 3.14159265:
I closed a 10 year account (my second oldest) when they dropped the limit from $10k to $500, on a zero balance card with no derogatory information. I called them and told them I was closing the account as I had no use for a card with a $500 limit. My score is still over 800. eff 'em.
@Sudonum: It's so weird because they haven't decreased my limit, ever, but I've had this card for about eight years, and they've never increased the limit. Maybe in their minds, I'm still 17?
I would love to see more data on these write-offs and write-downs from cc companies. Specifically, how much of the actual purchase amount was never paid compared with how much of the balance was not paid.
Because, look... I've had some big credit card bills in the past that took me a long time to pay off. If I charged (this is just a guess) $8k, I'm sure that I sent them twice that in the many years it took me to get it to zero. So even if, when it got down to $4k and I just stopped paying on it, the cc company still got their money and then some. (This isn't what happened, but I really thought about it.)
Am I explaining myself correctly?
@zonk7ate9: Something doesn't make sense with the ARMs. Most of them are keyed to an index, including the federal funds rate and some other indices, all of which are at historic lows. I would think that ARMs would have been adjusted downward so that they are now at their most affordable. I'm not talking about teaser rates here but fixed rate 30-year loans are only around 5.5%, maybe a half-point less. ARMs are certainly lower or at least no higher.
One thing banks and borrowers might consider is stretching the term of the loan. The payment on a forty-year loan is less than on a thirty-year loan, all other factors being equal. That might turn the trick for some borrowers.
A credit card company would rather get a lump sum of 40% than zero if the client files for Chapter 7 bankruptcy or just disappears.
WARNING: Settling a credit card debt like this will subject you to tax liability on the amount written off. Consult your tax professional.
Anyway, William Shatner is THE NEGOTIATOR, and according to my wife, my real father.
@pecan 3.14159265: And neither are a match for Neville Flynn... "Enough is enough! I have had it with these motherfucking rates on this motherfucking credit card!"
@Sudonum: Oh man, that sucks. I haven't had any of my credit limits dropped yet... Mine was just a store card I'm not going to use again. I was mentally prepared for the "but we want to keep you as a cardholder" spiel...
@pandroid: @pecan 3.14159265:
This was last winter. At the time I figured that my score was already taking the hit from the decrease in available credit, so how much lower could it drop after I closed the account? As it turns out, not much.
@zonk7ate9: Mostly because the interest will accrue faster than the rate they can pay. Banks are not usually willing to loan on terms longer than 30 years.
Credit card debt. A sucker's game.
@H3ion: I don't know for sure about ARMs but I would guess they are indexed to LIBOR but with a price floor. The tough part would have been sitting through 2007.
@RCheli: You're saying that the balance was paid off but the fees, penalties and interest were all that was left?
I think it goes without saying that anyone in credit card debt would probably rather have Samuel L. Jackson negotiating for them than Kevin Spacey. Sure, Spacey was terrifying in Seven, but I still haven't forgiven him for K-Pax.