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VIDEOCredit-Card Firms to Borrowers: Let's Make a Deal
Banks offer to wipe out balances, forgive debt.
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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."
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