Credit Card Providers Band Together with Consumer Helpline
Along with payments networks for MasterCard and Visa, Bank of America, Capital One, Citigroup, and Discover are participating in the program.
According to a report by the Fitch Ratings Credit Card Index, credit card charge-offs were 40% higher in January 2008 than January 2007, and the number is expected to rise. A charge-off occurs when a company gives up on trying to collect a bill and sends it to a collection agency. This typically happens when a bill remains unpaid for 6 months.
Card issuers are now reaching out to consumers to help them get back on track after missing a payment or two, or after a change in their financial situation. Issuers are offering customized solutions for individual cardholders – such as a reduction in interest, a waiver of late or over-limit fees, and lower fixed-payment plans.
The new service, called the “Help With My Credit” program, is aimed at providing assistance and education. Consumers can either visit helpWithMyCredit.org or call 1-866-941-1030. This is a toll-free number.
Depending upon the individual situation, operators will either direct the caller to a credit counseling agency or to a customer service representative with a credit card company.
The new work-out programs offered by these credit card companies can help consumers avoid the credit-damaging effects of a charge-off, and will of course help the credit card companies as well.
Interest rates in the 30% range, late payment fees of $39 per month or more, and similarly high over-limit fees can double a consumer’s debt in a few short months of non-payment.
Of course credit card issuers would prefer to collect the penalty fees and the high interest. However, they are willing to forgo collecting those extra dollars as an alternative to charging-off the debt. When an account is transferred to a collection agency, the card issuer receives pennies on the dollar, while the consumer still owes the full amount – interest, penalties, and all.
Credit card holders in financial trouble should note that even when the debt is charged-off their phone will continue to ring. The difference is that it will be a collection agency calling rather than the card issuer.
Thus, the work-out plans can be a win-win. They reduce the debt owed by consumers while ensuring that more dollars get back to the credit card issuers. The only “loser” in this scenario is the collection industry, because it is removed from the transaction.
