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Credit Card Applications » News » Other » Banks and Creditors to Take Off 40% of Consumers' Debt

Banks and Creditors to Take Off 40% of Consumers' Debt

December 19, 2009
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Though credit card balances are constantly dropping for the last 12 months, banks and credit unions expressed willingness to take off up to 40 percent debt of financially-stressed borrowers.

The latest data released by Federal Reserve showed consumers debt decreased to $86.2 billion. On August and September this year, 90 million cardholders' liabilities were recorded at $898.9 billion and $889 billion, respectively.

On the other hand, non-revolving debts, which are loans for cars, students, homes, also dropped to $1.567 trillion in September this year. In 2008 of the same period, the consumers' liabilities were $2.456 trillion.

Analysts explained that job losses have caused consumers to slow down in using their credit cards and stop borrowing more than they can pay. The unemployment rate was recorded at 10.2 last October, resulting to about 15.7 million people in America having no work.

However, this change in borrowing lifestyle does not solve the banks and lending companies' woes of losses. This continued economic slump provides a vague scenario to credit companies that the multi-billion dollar debt incurred by consumers may never be repaid.

According to a study conducted by the University of Illinois, most Americans carry an average of $46,000 debts in mortgages, credit cards, and car loans. Only two percent of their earnings go to savings. With this discrepancy, it is perceived that many Americans will go bankrupt.

So far, banks and lending companies have taken steps to protect their earnings - reducing credit limits, closing inactive accounts, and increasing overall interest rates.

Banks' proposal to forego 40 percent of the card debt is the latest measure to recover some of the money from consumers who owe them. The remaining balance is payable for five years without interest.

This scheme would lighten the burden of cardholders. On the part of banks, this proposal will give them a possibility of recovering a portion of the borrowed money.

Initially, only 50,000 consumers, who are financially unstable and near bankruptcy, would benefit with this proposal. Lending companies will eventually extend the same to tens of thousands.

Meanwhile, banks have requested the Office of the Comptroller of the Currency (OCC) that they will be allowed not to furnish the federal agency the record losses they will incur this year because of forgiven debt.

There is a rule that banks should book their earnings and losses. The same is subject for review and evaluation by OCC, which regulates and supervises 1,650 commercial banks in the country.

An advocate group, Roundtable and the Consumer Federation of America, opined that this new proposal is a win-win solution to both parties.

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  • Larry
    With the Virgin / Barclaycard signature offer, there seems to be some consumer deception or maybe even outright fraud goin on.   I decided to jump on this offer..  read all the info on it..  was approved for their platinum card, paid the fee, then was only awarded 10,000 points instead of the advertised 20,000.   When i inquired about the less than advertised bonus points, Barclaycard claims only Signiture Visa cardmembers get the 20,000..  as a platinum cardholder, you don't qualify for that level of bonus, so you get 10k instead.   Well, in their current ongoing promotions, it states plain as day that....    Applicants approved for the Visa Signature or Platinum Card with $49 annual fee will receive 20,000 Bonus Points awarded to your Virgin America Rewards Account at the close of the first billing statement in which you make your first purchase or balance transfer (that is not returned or rescinded) and have paid the Annual Fee on the account (and such fee is not rescinded). They don't mention anything about a separate program for platinum cardholders..  However, trying to get someone to resolve this issue with either Virgin or Barclaycard seems to be rather impossible.. Seems to me they're simply drawing people in with the fraudulent offer, then simply saying, oh, we're sorry you don't qualify..  but thanks for signing up for our garbage credit card with insane fees..   
  • CreditLandCom
    Thank you for sharing your experience with us. We have reviewed this offer and you are correct, nowhere it is mentioned that 20,000 Bonus can become a 10,000 Bonus all of a sudden... We will mention this in our review of this card so others can make an informed decision. Another way to get Virgin miles is to get an American Express charge card: The Business Gold Rewards Card® now offers 50,000 Miles, though you do have to spend $5,000 in the first three months of card membership to get it. It also has $0 introductory annual fee for the first year, then $175. http://www.credit-land.com/details/the-business-gold-rewards-card-from-american-express-open.php Premier Rewards Gold Card now offers 25,000 Miles, though you do have to spend $2,000 during your first three months of Card membership. It also has annual fee of $0 for the first year, then $175. http://www.credit-land.com/details/american-express-premier-rewards-gold-card.php While we do not know If any of these offers make sense to you, we are at least sure that you will get advertised bonus in full if you decide to get them... Conversion rates for Virgin America are: 100 Elevate Points = 200 Membership Rewards® Points All the best.
  • Deborah Ellsworth
     would very much like to start a new credit history  by making payments on time I would tohave a credit card that is NOT PREPAYID! I don't need a card with a high limit just something to start a new credit history. Thank You Deborah Ellsworth
  • Deborah Ellsworth
    I would very much like to start a new credit line to get back on track. I DO NOT WANT A PREPAID CARD!! This new credit card if I am approved does not have to hace a high limit just something for me to start over again and prove myself ThankYou. D Ellsworth
  • Miss Edna
    there is a huge problem with the RFIP chip: it is easily compromised. There are already 'readers' in the form of what looks like a cellphone in a case, that scans all the info in the chip by merely walking near a person -- this 'reader' penetrates leather, cloth, spandex, etc. The only thing it will NOT penetrate is METAL. Perhaps one has seen commercials touting metal credit card cases. Here is my hint for a free fix: cut a piece of aluminum foil or use the foil that is used to keep foods fresh, like coffee. Cut it so that when folded once, it forms a sleeve for your credit card. place the credit card in the sleeve, then place the sleeve in your wallet.
  • Robin Parks
    I am looking to apply for the AARP Visa signature card from Chase that offers $100 after spend $500 in first 3 months, no annual fee and 0% interest first year; I don't want to mail in offer because of having to write in Social security #. Can you direct me to the proper on-line site?
  • CreditLandCom
    The Chase bank cards are not currently available at Credit-Land.com, but you can consider applying for the Citi® Dividend Platinum Select® Visa® Card - $100 Cash Back. The cards has similar terms and cash back program.
  • Becky
    This is Becky Now what do I do just waqit for acard to come to me?
  • CreditLandCom
    Once you have applied, you should receive a letter within 10 business days letting you know if you were approved and when your card will arrive. If you did not receive any letter or notification from the issuer, you should contact them directly. Also, you should contact the issuer if you’ve been waiting for your credit card longer than 30 days. Since we are not a bank and don’t issue credit cards, we cannot give you any information about your application or credit card.
  • SavingStar
    Thank you for posting about SavingStar. Just to clarify one sentence in your article, we have over 5 million members (not 500). Thanks, Josh
  • CreditLandCom
    Sorry for the misprint. We’ve corrected the sentence. Thank you for noticing that.
  • Eric
  • John Stifler
    I think almost all people that familiar with internet, will hardly fall to these scams, but for now, I think people that use computer but don't familiar with internet things, and they has a phone line at their home, they should be warned more than internet users. I think senior people usually got scammed by these kind of "tech support" scams. Found so many reports about them since years ago at complain board sites like http://callercenter.com. We as younger, and know more about this stuff, should help and share information to they who needed it, especially older people.
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