In recent weeks, we have heard about rising delinquency rates among the largest issuers of credit cards. According to the Federal Reserve Board, the delinquency rate on credit cards for all banks reached 4.9% in Q2 of 2008. This delinquency rate is at the same level as in late 2001 when the US economy was facing difficult times.
Now, a group called the Financial Services Roundtable which represents over 100 of the largest banks is recommending a pilot program to federal regulators that would forgive up to 40% of outstanding credit card balances for approximately 50,000 consumers who are having a difficult time paying down their balances. Such a program would not only give some relief to those who are also having difficulty with paying mortgages or car loans, but it would provide banks with the opportunity to receive a write-off on their financial books. With average consumer credit card debt hovering around $10k, this would equate to roughly $200 Million in write-offs - representing 0.02% of the estimated total American credit card debt.
Those who support the pilot program aren't advocating the behavior which drove consumers into the inability to pay their debt obligations. However, some relief will soften the black cloud hanging over these consumers from getting on the right track or implementing an effective program toward a debt free lifestyle. As a spokesperson from the Financial Services Roundtable put's it from an interview with the Associated Press, "Both parties win".