CHESSNOID

We have bailed out banks, insurance companies, auto companies, and many other  wall street companies, so when does the consumer get bailed out?  I have seen this article reprinted a few times, and this may be what many consumers have been waiting for.

Credit card issuers are giving out settlements for less than the balance in full before the accounts are charged off.  That sounds like a great deal to me.  Yes, you will take a hit on your Fico and credit scores, but really most lenders are not increasing credit lines or even granting them.  Not as long as the credit card companies keep amassing bigger losses every month.

NY Times:

Mr. McClelland’s credit card company was calling yet again, wondering when it could expect the next installment on his delinquent account. He proposed paying half of his $5,486 balance and calling the matter even.

It’s a deal, the account representative immediately said, not even bothering to check with a supervisor.

As they confront unprecedented numbers of troubled customers, credit card companies are increasingly doing something they have historically scorned: settling delinquent accounts for substantially less than the amount owed.

The practice started last fall as the economy worsened. But in recent months, with unemployment topping 9 percent and more people having trouble paying their bills, experts say this approach has risen drastically.

They say many credit card issuers have revised internal guidelines to give front-line employees the power to cut deals with consumers. The workers do not even have to wait for customers to call and ask for a break.

“Now it’s the card company calling you and saying, ‘Let’s talk turkey,’ ” said David Robertson, publisher of the credit industry journal The Nilson Report.

Only a few creditors are willing to confirm the practice. Bank of America and American Express say they decide on a case-by-case basis whether to accept less than the full balance. Other card companies refuse to discuss the subject, but their trade group, the American Bankers Association, acknowledges that settlements are becoming more common.

…

“The creditors would rather have a piece of something now instead of absolutely nothing down the road,” said Adam K. Levin, the founder of the consumer education Web site Credit.com.

Banks and credit card companies are discussing new programs that would, for the first time, allow credit counselors to invoke reductions of principal as a routine part of their strategy, said Jeffrey S. Tenenbaum, a lawyer for many counseling agencies. In the past, counselors could persuade card issuers to adjust interest rates and modify late fees, but the balance was untouchable.

An example of how quickly the card companies are shifting their approach is in the behavior of HSBC, a major issuer, toward Mr. McClelland.

He was paying fitfully on his card, which was canceled for delinquency. In April, HSBC offered him full settlement at 20 percent off. He declined. A few weeks later, it agreed to let him pay half.

Traditionally, the creditors could play tough with any accounts that became delinquent because the cardholders had assets. The creditors could sue or place a lien on a cardholder’s house.

As the recession grinds on, though, many cardholders have less to lose. Mr. McClelland, 42, is a renter. Since he is self-employed, he has no wages to garnish. But he did not want to feel like a deadbeat.

“Having this over and done with was appealing,” he said. He raised the agreed-upon $2,743 and sent it off electronically last week. He has spared himself the prospect of years of collection calls.

HSBC said it did not comment on individual cardholders and would not discuss its policy toward settlements. “Every customer situation is unique,” said a spokeswoman, Cindy Savio.

Chances are if you have carried a balance on your credit card for a few years, you have probably paid the principal amount back 2 to 3 times over. So don’t feel sorry for the credit card companies.

Knowing that these credit card companies are granting 50% settlements, it may be possible to get even a bigger break. The best strategy is to wait for EOM (end of the month) which is when collection departments get crazy, break protocol and play let’s make a deal, and push hard to make their delinquency goals. These goals usually determine what bonuses they will get.