Banks and consumer advocates failed to convince Federal bank regulators that a program designed to forgive huge portions of credit card debt was in the best interest of the economy.

The Office of the Comptroller of the Currency rejected the proposal for a special program that would forgive as much as 40 percent of credit card debt held by consumers who don’t qualify for existing repayment plans. Under the proposed plan, borrowers would be able to defer payment of income taxes on the forgiven portion of their credit card debt after the part not forgiven was paid off. The lenders would also be able to defer reporting their losses on the forgiven credit card debt.

The unusual alliance of financial industry interests and consumer advocates were represented by the Financial Services Roundtable (which represents over 100 large banks, brokerage firms and insurance companies) and the Consumer Federation of America presented the credit card debt forgiveness program to the Treasury Department agency on Oct. 29, 2008.

The credit card debt forgiveness proposal was rejected because the Deputy Controller did not believe it was prudent to give credit card companies the power to defer reporting losses for several years.

Although I can understand why the government would not want to let creditors defer the reporting of losses, credit card debtors need relief immediately. Currently there is no way credit card debtors can gain relief from defaulted credit card debts short of bankruptcy. Some type of credit card debt forgiveness program needs to be created immediately to help the most desperate debtors.