Tax reform has passed and economic growth finally appears to be picking up. Companies have responded to tax reform by increasing investments, bonuses, and wages, and tax cuts will start showing up in paychecks in the coming weeks. These are all positive steps that will help millions of families.
But one more step needs to be taken to address the economic anxiety of millions of working people mired in household debt.
The banking industry will reap billions of dollars in savings from tax reform. Major banks have said they will use their tax savings to increase dividends and share buybacks, raise employee pay and benefits, increase customer lending, and open new branches — all worthwhile actions that will benefit the economy.
There is one more step banks should take that would benefit their industry and their customers. They should use a portion of their tax reform savings to help their credit card customers get out of debt and out of the clutches of abusive debt collectors.
Millions of working Americans are living paycheck to paycheck, crippled by financial stress and anxiety caused by record levels of household debt. According to one study, a greater share of Americans today have more debt than money in the bank than at any time since 1962. Total household debt is at record levels, and credit card debt is at an all-time high, exceeding $1 trillion.
One in three Americans are under pressure from debt collectors, facing repeated phone calls, and threats of wage garnishment, asset seizure, job loss, and even jail time. Ten million lawsuits were filed last year by debt collectors. It's no wonder that six in 10 Americans say they lose sleep at night worrying about money matters and debt.
Ray Dalio, noted investor, hedge fund manager, and philanthropist, has written extensively about the financial plight of what he calls the bottom 60 percent of Americans: those with flat incomes, no savings, and record levels of debt. He calls their plight America's "biggest economic, social, and political issue."
The banking industry can do their part in helping these struggling Americans with one simple step — stop selling their charged-off debt to debt collectors.
Instead, banks should donate the debt to nonprofit organizations that pledge to work with consumers to resolve their debt. These nonprofits would provide a range of financial remediation services to help consumers restructure their debt, and money management skills to avoid debt problems in the future. Unlike debt collectors, they would never sue, abuse, or harass consumers over their debts.
With this one move, the banking industry would help struggling consumers get back on their feet, free from debt collectors — the number one source of consumer complaints to the Consumer Financial Protection Bureau.
Using a small portion of their tax reform savings to help their customers avoid debt collectors would also benefit banks by reducing the legal, regulatory, and reputational risks of dealing with debt collectors.
Using some of their tax reform savings to help people improve their financial lives would be a smart move for banks, good for their business, their reputation, and their customers who need help the most.
Bruce Thompson is a contributor to the Washington Examiner's Beltway Confidential blog. He is a consultant in Washington. During the Reagan administration, he was Assistant Secretary of the Treasury for Legislative Affairs.
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