Government Rejects Proposed Pilot Program For Debt Forgiveness
Nov 13th, 2008 | By Rob | Category: Uncategorized
The news broke last night that the U.S. Government had rejected the credit card debt forgiveness program proposed by a coalition of the credit card companies and consumer advocates, according to the Associated Press.
As I observed in my recent post on credit card debt forgiveness that responded to credit card industry claims that there was “no catch” to the proposed partial debt forgiveness program, the banks issuing credit cards hoped to write down the losses from the portion of the credit card debt not repaid over years rather than over months. At a time when banks are constantly writing down the value of housing related assets (such as mortgage backed securities and construction loans) on their books, the credit card companies argued that they would be more willing to negotiate reductions in consumer credit card debt if they did not have to write down the amount of the debt forgiven over a period of a few months.
The government rejected the proposal for a pilot program, not because it didn’t want to help consumers avoid bankruptcy, but because it is already facing a crisis from the failure to recognize losses in a loan portfolio - due to losses in the banking and insurance industry from housing, mortgage backed securities, and credit default swaps. As it attempts to encourage transparency by banks in these areas, it clearly didn’t want to encourage a set of financial institutions to defer their losses and set the nation up for a similar credit card meltdown.
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.
In some ways, it’s unfortunate that the government took a mere two weeks to reject the proposal and offered no solution to the potential credit card crisis. I guess we will have to wait for the next administration to take action.
If you are interested in learning more about the proposed forgiveness program, the following posts will be of interest to you:
- Credit Card Debt Forgiveness Program Proposed - 10/29/08
- Creditors Benefit From Debt Forgiveness Plan - 11/10/08
