Writing in the LA Times, columnist David Lazarus describes a new proposal that could potentially benefit both borrowers and lenders.
Under the plan, which was proposed by a nonprofit group of top banking executives known as the Financial Services Roundtable, financial institutions could forgive up to 40 percent of troubled consumers’ credit card debt.
If you think this offer sounds too good to be true, the group’s Scott Talbott insists that it is sincere.
“There’s no catch. There’s no hidden agenda. These are extraordinary times and the industry is aggressively working to help consumers,” he told the news provider.
How it works: First, an individual would have to meet with a credit counselor to determine if their personal situation qualifies them to have between 10 and 40 percent of their debt waived by their lender.
After that assessment is approved, the consumer would be able to repay the rest of their credit card debt over a period of five years – with no interest attached.
It is an appealing offer, which may make you wonder when banks became so forgiving of borrower’s missteps.
Well, ever since they realized that it was also in their best interest to ensure that heavily indebted consumers were paying back at least a portion of the money they owe.
As the true scale of America’s debt problem comes into focus, banks realize that the number of accounts they will not be able to collect on at all – known as charge-offs – is likely to rise.
In fact, one of the only risks of the proposal is that cardholders who are responsible about paying their bills will resent the bailout of those who have not been so consistent, Consumer Action’s Linda Sherry suggested.
Meanwhile, the rising number of delinquent payments seen by card providers has been taking a toll on the credit terms they are willing to offer borrowers of all types.
Consumer advocate John Ulzheimer recently told Newsday that many lenders have raised the minimum credit score they require to lend money.
“We have seen some situations where 780 is the target score,” he explained, adding that only around 17 percent of consumers could qualify for those offers.
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