Under the groups' proposal to U.S. Comptroller of the Currency John Dugan, whose Treasury Department agency oversees national banks, a pilot project would allow big credit card companies to sharply reduce the amounts owed by consumers in over their heads who don't qualify for the repayment plans now available.
Nearly all the biggest credit card banks have agreed to such a pilot program, in which lenders would forgive as much as 40% of the amount consumers owe, allowing them to pay back the remainder over time.
The program could reach as many as 50,000 borrowers, said Scott Talbott, senior vice president of the Financial Services Roundtable. Borrowers would have to be in a counseling program for their debt. The amount to be forgiven would depend on the borrower's financial condition; those receiving close to the maximum forgiveness level would be nearing a personal bankruptcy filing.
And there would be a tax benefit. Borrowers would be able to defer payment of income taxes they owed on the forgiven part of the debt until after the remainder was paid off. The lenders could wait until then to book their losses on the forgiven debt.
"Both parties win," Talbott said.
Current government rules don't allow lenders to offer repayment plans that reduce the amount of principal owed and borrowers to repay the balance over several years. In credit card settlement cases in which the principal can be reduced, borrowers normally are required to pay off the remainder over months rather than years.
Kevin Mukri, a spokesman for the comptroller's office, and Peter Garuccio, a spokesman for the American Bankers Assn., declined to comment.
