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The Office of the Comptroller of the Currency this week rejected a plan a banking group and the Consumer Federation of America jointly proposed that would have enabled banks to forgive up to 40% of heavily indebted credit card borrowers' debt. The federation and the Financial Services Roundtable, a policy and lobby group representing 100 major U.S. banks, proposed the plan in a letter to the OCC last month (CardLine, 10/31). Under the plan, cardholders on the brink of bankruptcy would get a break of as much as 40% on the principal owed and would be allowed up to five years to pay off their remaining debt at no interest. The plan would have prevented many bankruptcies and enabled banks to recoup at least some of losses they otherwise would write off, a spokesperson for the financial-services group says. Timothy W. Long, senior deputy comptroller at the OCC, turned down the proposed plan in a letter to the two organizations. "The OCC does not consider any plan that defers the timely recognition of loss as prudent, and any such proposal cannot be viewed favorably by us," he wrote. "Our longstanding policy is that banks are not allowed to attempt long-term recoveries while assets deemed uncollectible have not been accounted for as charge-offs and reported as losses. To do so compromises ... public confidence in the banking system." A Financial Services Roundtable spokesperson says the two organizations will continue to work on other approaches to help distressed borrowers avoid bankruptcy.
