The banks were bailed out last fall, the automobile companies last winter. For Edward McClelland, a writer in Chicago, deliverance finally arrived a few days ago.Mr. McClelland’s credit card company was calling yet again, wondering when it could expect the next installment on his delinquent account. He proposed paying half of his $5,486 balance and calling the matter even.It’s a deal, the account representative immediately said, not even bothering to check with a supervisor.As they confront unprecedented numbers of troubled customers, credit card companies are increasingly doing something they have historically scorned: settling delinquent accounts for substantially less than the amount owed.The practice started last fall as the economy worsened. But in recent months, with unemployment topping 9 percent and more people having trouble paying their bills, experts say this approach has risen drastically.They say many credit card issuers have revised internal guidelines to give front-line employees the power to cut deals with consumers. The workers do not even have to wait for customers to call and ask for a break.“Now it’s the card company calling you and saying, ‘Let’s talk turkey,’ ” said David Robertson, publisher of the credit industry journal The Nilson Report.Only a few creditors are willing to confirm the practice. Bank of America and American Express say they decide on a case-by-case basis whether to accept less than the full balance. Other card companies refuse to discuss the subject, but their trade group, the American Bankers Association, acknowledges that settlements are becoming more common.The shift comes as the financial services industry finds itself losing some of its legendary power. A credit card reform bill that makes it harder to raise rates on existing balances and prevents certain automatic fees flew through Congress and was signed by President Obama in late May.Borrowers still have a crushing amount of debt to deal with, however.Revolving credit, a close approximation of credit card debt, totaled $939.6 billion in March. The Federal Reserve reported that 6.5 percent of credit card debt was at least 30 days past due in the first quarter, the highest percentage since it began tracking the number in 1991. The amount being written off was also at peak levels.After a balance has been delinquent for six months, regulations require the card company to reduce the value of the debt on its books to zero. If a borrower has not paid by this point, chances are he never will.“The creditors would rather have a piece of something now instead of absolutely nothing down the road,” said Adam K. Levin, the founder of the consumer education Web site Credit.com. Banks and credit card companies are discussing new programs that would, for the first time, allow credit counselors to invoke reductions of principal as a routine part of their strategy, said Jeffrey S. Tenenbaum, a lawyer for many counseling agencies. In the past, counselors could persuade card issuers to adjust interest rates and modify late fees, but the balance was untouchable. CONTINUE READING...