Treasury Decides Against Credit Card Debt Relief for Consumers

Americans are currently carrying an estimate $900 Billion in credit card debt, according to recent figures available from the Federal Reserve. The rate at which banks and lending institutions have been forced to charge-off credit card debt as "unpaid balances" has risen 48% over the same period last year to an overall percentage of 6.8%. As a result, credit card lenders and consumer advocates banded together in a rare show of solidarity to lobby the government for relief.

The proposed plan would have eventually allowed forgiveness or restructuring for up to 40% of outstanding credit card debt for nearly 50,000 of the most deeply indebted in the U.S. And while that concept may seem somewhat absurd to many Americans, the reason that the plan was rejected had nothing to do with the amount of credit card relief being sought.

The aspect of the plan that was ultimately identified as the deal-breaking piece involved the banks and lenders deferring the reporting of the losses on the forgiven debts for tax and accounting purposes. Essentially, the losses would not have to appear on the books of the banks until after the remaining debt had been paid off. And the same for any taxes to be paid by the issuing banks on the credit that was outstanding to card holders. Only after restructured debt had been satisfied would banks be required to pay taxes on what they had earned.

This period of deferment created a limbo period during which no taxes would be paid and lenders would be able to shield the public and shareholders from potentially ugly balance sheets. Ultimately, the Office of the Comptroller of the Currency determined that this type of approach would only continue to undermine the necessary but weakening confidence required in the U.S. banking system.