Regular readers know I don’t normally have much good to say about OCC bank regulator Tim Long. But Long was absolutely right this week to put the kibosh on the banking industry’s nutty proposal to defer losses on bad consumer credit card debt.
The plan, concocted by an odd alliance of bankers and consumer groups, was a one-two punch of dumb ideas. First, it would have let card lenders “forgive” certain delinquent card debt--then defer recognition of those losses for several years. Plus, delinquent consumers wouldn’t have had to pay tax on the income they’d have realized as a result of the debt forgiveness.
A harebrained, soak-the-taxpayers accounting jury-rig if there ever was one, in other words. I can’t think of anything to justify the scheme. For starters, there’s zero accounting rationale for it. Just the reverse: it would have obfuscated rather than clarify, and would have dragged out current problems rather than properly reflect them. On top of that, the plan would have been a tax giveaway to people who don’t deserve one. Other than that, a great idea!
So kudos to Tim Long for torpedoing the plan. I admit I’ve been skeptical of how regulators would react to the current mess. But if Long’s decision is anything to go by, they’ve learned a thing or two since the early 1990s.