It is my view when big business comes to government seeking action, the request is usually in "spin" form, just like this one.
Red flag #1:
"An unusual alliance of financial industry interests and consumer advocates, represented by the Financial Services Roundtable and the Consumer Federation of America, made the request to the Treasury Department agency on Oct. 29."
Since when do credit cards and consumer unions agree on anything?
Red flag #2:
"Under the proposal, borrowers would be able to defer payment of income taxes they owe on the forgiven part of the credit card debt until after the remainder was paid off. The lenders could wait until then to book their losses on the forgiven debt."
"The two groups hoped such a pilot program would become permanent and that as many as 50,000 people struggling with credit card debt would be involved. On an individual basis, the amount of debt to be forgiven would rise according to the severity of the borrower's financial situation, up to a maximum of 40 percent. Consumers would be allowed to pay back the remainder over several years."
Since when does debt forgiveness involve future payments? Get it? It's a promises of debt forgiveness, but only up to 40% (while allowing credit card companies to hide the true extent of the trouble they are in for years) and at the same time, suckering the very people who need (complete) relief into paying back 60% of what they owe. And the consumer still has to pay tax on the portion that was forgiven, it's just deferred. How exactly does that help the consumer?
So why would the Consumer Federation of America be in support of this "trick"?
Ever hear those ads for companies who simply want to help you fix your credit card debt? Please correct me if I am wrong, but it is my understanding these leeches get you to make monthly payments a month in advance (to teach you financial responsibility). They then hold on to your money and earn interest from the moment you pay them in advance until the last possible date before the credit card company would consider the payment late and then they make the payment.
In short, both of these groups have something in common: they want consumers to pay their credit card debts.
So why go to the government? Personal bankruptcies are rising (even in spite of the tougher bankruptcy laws credit card companies lobbied for 4 years ago). Those consumers who find bankruptcy unavailable to them may just stop making payments and let the credit score and tax implications fall where they land.
