AG McKenna moderates panel at national meeting of attorneys general
Washington, D.C.—A depressed job market, the growing number of Americans without health insurance, ballooning college costs, the increased availability of gambling, and the growing use of credit for routine purchases are helping push credit card balances to the breaking point. The result, according to a panel of experts who met Tuesday at the nation’s capital, could result in the next major banking crisis.
Washington State Attorney General Rob McKenna moderated the panel, “The credit card crisis: the next shoe to drop?” at the annual spring meeting of the National Association of Attorneys General (NAAG).
“The scale of this crisis underscores the urgency of our work to assist borrowers buried in personal debt, McKenna said. “State attorneys general lead the way, negotiating settlements with sub-prime lenders and persuading home mortgage companies to reduce interest rates for millions of Americans.”
A deepening crisis, panelists agreed Tuesday, could have an unpredictable impact on financial markets, as credit card debt has been securitized in the same way that mortgage-back securities were prior to the banking collapse of 2008. In addition, the trend in recent years to consolidate high-interest credit card balances into low-rate home mortgages has further reduced consumers’ equity in their homes as housing prices have plummeted. As a result, credit card debt that could be discharged in bankruptcy has been turned into secured debt that must be paid in full for borrowers to keep their homes. And even borrowers who pay on time can find themselves impacted by the decision of banks to reduce credit lines in an effort to stem potential defaults.
Presentations by NAAG bankruptcy attorney Karen Cordry and Dr. Robert Manning of the Center for Consumer Financial Services noted that as of December 2008, American consumers owed more than $2.6 trillion in non-mortgage consumer debt, of which $963 billion was credit card debt, and more than $11 trillion in mortgage debt. The shrinking economy, Cordry noted, resulted in more than a million personal bankruptcies last year – and that number will likely increase dramatically this year.
“Stemming the number of foreclosures will ultimately stabilize the housing market and provide some breathing room for consumers,” McKenna said.
The Washington State Attorney General’s office plays a leading role in the State Foreclosure Prevention Working Group, a coalition of state attorneys general and state banking regulators, formed to identify strategies to prevent unnecessary foreclosures. The working group has approached every major loan servicer on behalf of struggling borrowers. The group also sent a letter last month urging federal officials to encourage national banks and federal thrift-servicing operations to modify mortgage loans that are becoming unaffordable for consumers
Panelists Tuesday also included Mallory Duncan of the National Retail Federation.
If you are struggling with credit card debt, there are steps you can take to avoid bankruptcy, according to The Federal Trade Commission’s guide, “Knee Deep in Debt”:
Develop a Budget: The first step toward taking control of your financial situation is to do a realistic assessment of how much money you take in and how much money you spend. Start by listing your income from all sources. Then, list your “fixed” expenses — those that are the same each month — such as mortgage payments or rent, car payments and insurance premiums. Next, list the expenses that vary — such as entertainment, recreation and clothing. Writing down all your expenses, even those that seem insignificant, is a helpful way to track your spending patterns, identify necessary expenses, and prioritize the rest. The goal is to make sure you can make ends meet on the basics: housing, food, health care, insurance, and education.
Contact your creditors: Contact your creditors immediately if you’re having trouble making ends meet. Tell them why it’s difficult for you, and try to work out a modified payment plan that reduces your payments to a more manageable level. Don’t wait until your accounts have been turned over to a debt collector. At that point, your creditors have given up on you.
Manage your auto and home loans: Most lenders are willing to work with you if they believe you’re acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, though, you may have to pay an additional amount toward the past due total. Other lenders may agree to change the terms of the mortgage by extending the repayment period to reduce the monthly debt. Ask whether additional fees would be assessed for these changes, and calculate how much they total in the long term.
Get credit counseling: Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But be aware that, just because an organization says it’s “nonprofit,” there’s no guarantee that its services are free, affordable or even legitimate. In fact, some credit counseling organizations charge high fees, which may be hidden, or urge consumers to make “voluntary” contributions that can cause more debt.
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