Lenders Settling Debt on Credit Cards with Consumers

Settling Debt

More creditors are agreeing to settlements on credit card debt before law changes make their rates illegal. (Photo: picasaweb.google.com)

More creditors are agreeing to settlements on credit card debt before law changes make their rates illegal. (Photo: picasaweb.google.com)

A new study is showing that many lending companies are settling debts on delinquent credit cards. As a new way of mitigating losses, many credit card companies are settling cards for notably less than the total amounts owed. Edward McClelland, a writer in Chicago, is a consumer who had an outstanding balance of $5,486 to deal with. At a loss, McClelland offered the credit card company’s customer service representative half of the amount. Surprisingly, his offer was accepted without supervisory permission.

A growing trend with credit card companies is to accept settlements directly from customers. Due to the unemployment rate in the nine percent range and more people struggling with bills, companies are opting to take what they can get. Companies are also giving their customer service teams direct authority to settle with customers. David Robertson, publisher of the credit industry journal called “The Nilson Report,” stated that “Now it’s the card company calling you and saying, ‘Let’s talk turkey.’”

The Credit Card Secret

Many card companies are keeping their new settlement policies secret, however. Only a few are willing to disclose their new loss mitigation plans. Bank of America and American Express are both professing to using the tactic on a “case-by-case” basis. And other companies are mum on the topic, though the Bankers Association stated that settlements are a growing practice.

This change in procedures is an indicator that the credit card industry is losing some of its control over the market. The upcoming credit reform bill is another looming change that factors into lenders’ planning processes. Once 2010 arrives and the bill is passed, companies will have a hard time raising interest rates and many of their once-common fees will no longer be legally applicable. The reality is that despite changes and more rules for credit cards and lenders, they are still looking for ways to find debt relief. It’s estimated that credit card debt is reaching $939.6 billion and a record level is being written off. Adam K. Levin, founder of Credit.com, stated that “Creditors would rather have a piece of something now, instead of absolutely nothing down the road,”

Future Plans for Creditors

For the first time, credit agencies and banks are examining new programs that would allow counselors to use reductions of principal as part of their account settlement processes. Previously, counselors would work with companies to modify interest rates and late fees, but the balance had to remain unchanged. It was the one non-negotiable factor in accounts.

In addition, many creditors were used to being tough on delinquent customers, citing their assets as proof they could pay. In the end, creditors could sue or put a lien on the credit holder’s assets. The after effects of the recession have created a credit-holding body that has less to lose. This is posing a problem with credit card companies who still want their money, but find little options on how to get it.

Credit Cards Settling Like Never Before

Debt relief for companies issuing credit cards is a number one priority. The swelling amount of delinquent accounts that have come from the faltering economy has forced them to consider a new, more realistic methodology for dealing with consumers. They are willing to settle with customers and take what they can get, rather that staunchly demand money they probably will never see.

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