Credit Card Debt Programs

New Proposed Credit Card Debt Relief Programs - Many Americans are in default with their credit card debt. As a result of this, many U.S. banks are attempting avoid another financial crisis via its credit card sector. To-date, U.S. banks are still unstable from the mortgage crisis and are also losing more billions of dolars from unpaid credit card bills.

Some large banks have formed an unusual alliance with consumer advocates to urge the U.S. government to allow huge portions of credit card debt to be forgiven, a turnabout from recent years when the banking industry lobbied strenuously to make it harder for consumers to erase their credit card debts in bankruptcy.

The new pilot program, which the banks hope will become permanent, could involve as many as 50,000 people struggling with credit card debt. On an individual basis, the amount of debt to be forgiven would rise according to the severity of the borrower's financial situation, up to a maximum of 40 percent.

There are obvious financial benefits to the financial institutions to step up right now. In an increasingly tough economic climate, banks and other mortgage lenders already have been agreeing to modify loans of distressed homeowners to help them avoid foreclosure. Now, banks making credit card loans have reached a point where they can lose less by forgiving part of the debt than seeing the consumer walk away entirely.

Credit cards now look to be the latest domino to drop in a financial crisis that started with subprime mortgages and continually takes new twists. With the rise in U.S. job losses, many credit worthy consumers have been defaulting on their credit cards. Banks already battered by the mortgage and credit crises are bleeding tens of billions in red ink from the losses.

Americans are lumbering under about $900 billion in credit card debt, according to the latest available Federal Reserve figures. The new proposal pitched to federal regulators by the Financial Services Roundtable, which represents more than 100 big banks and other financial companies, and the Consumer Federation of America, would allow lenders to reduce by as much as 40 percent the amount of credit card debt owed by deeply indebted consumers in a pilot program.