As if the idea of blowing off those nagging, oppressive credit-card payments weren't enticing enough, now card issuers are giving struggling borrowers one more reason to let payments lapse. They're playing a few rounds of "Let's Make a Deal."
Faced with the prospect of recording a goose egg where a credit account once was, lenders are offering to partially forgive delinquent borrowers' past due balances. According to the New York Times
, the practice is gaining currency in the downturn.
When times were good, big credit-card companies like Citigroup
(C), American Express
(AXP), and Capital One
(COF) simply hiked fees, collected interest, then sold defaulted debt to the highest bidder. Now that the value of past-due accounts has tumbled -- and new legislation has restricted fee-gouging -- issuers are eager to collect something rather than nothing.
Increasingly, lender representatives are offering to cut deals with late payers, wiping out as much as half a borrower's outstanding balance -- provided the borrower agrees to pay the remaining amount in full.
That is, of course, assuming that the borrower has shown a tendency to default in the past, thereby creating a perverse incentive for those struggling to get by to finally throw in the towel.
While the new trend may sound like a godsend for the vastly over-indebted American consumer -- we now owe credit card companies almost $1 trillion -- it's evidence of a more widespread -- indeed global -- trend: The repudiation of debt.
As Minyanville's Kevin Depew
noted last month: "Payment defaults and delays in Germany more than doubled in the 6 months ending March 31, compared with the prior year. Bottom line: Debt cancellation is increasing, and spreading."
From Ohio to California, Detroit to Florida, borrowers are beginning to feel like nonpayment of debt -- be it credit cards or mortgages -- is the only moral, respectable way to fight the financial machine. Indeed, even the small Andean nation of Ecuador recently thumbed its nose at creditors, calling a portion of its debt "illegal.
In the same way that American banks faced with non-payment of mortgage and credit card loans have done, Ecuador's lenders bit the bullet and allowed that country to buy back its own delinquent debt at pennies on the dollar.
The federal government is pumping trillions of dollars into the American financial system, hoping banks will funnel the money back into the economy through new loans. Consumers, however, aren't biting.
Perhaps it's a simple matter of economics that we no longer have the income to cover our ballooning debt service. But perhaps the tide has turned. Perhaps the winds of social change are now blowing in a healthier, more sustainable direction, one where we can live free of the shackles of debt dependency.
Hey, a guy can hope, right?
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