Loan Mods for Credit Cards Now at a Bank Near You

Banks don’t like it, but some are starting to cave in to consumer and advocate demands for credit card loan modifications. It’s happening quietly, but it’s happening.

Here’s the skinny. Credit card companies are weighing their options in a credit environment where credit card defaults have risen above 10%. Moody’s (Stock Quote: MCO) estimates that the national average charge off rate was 10.52% in July and is expected to hit 12% by mid-2010, the company reports.

Defaults lead card companies to “charge off” debts from card consumers – meaning it’s money the card company expects it will never get.

Consider Bank of America (Stock Quote: BAC). In June, the bank reported that its default rate had reached 13.8% - that was up from 12.5% in May. That’s almost 14% of all credit card loans that Bank of America will have to write off as a bad debt.

With its back to the proverbial wall, Bank of America now anticipates modifying 1.2 million credit cards in 2009 – that’s up from one million, according to The Washington Post (Stock Quote: WPO). The Post also reports that Chase (Stock Quote: JPM) is taking steps to ease its credit card modification program, which resulted in more than 600,000 consumers having their credit card debt restructured.

In a credit card modification deal, what can consumers expect? For starters, card customers who are in significant arrears may be forced to close their accounts to earn a lower interest rate. For example, if you owe $10,000 on a card with a 20% interest rate, card companies are amenable to lowering that rate to 5% or 6% - if you agree to give up the card and close the account. If you really push the issue, you might get an even lower rate offer – even 0% - if you can come up with a decent, upfront cash payment and, once again, agree to close your account.

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