Checking Up On Credit Counseling
Credit unions, particularly those that have partnered with credit counseling organizations, need to keep an eye on the ongoing examination of the consumer credit counseling industry, which has drawn fire since allegations of abuse have cropped up at nonprofit counseling agencies across the country.
"Our state credit union subcommittee started looking at this last summer," said CUNA's Colleen Kelly. "We have followed what's been going on."
What's been going on, allegedly, are missing funds, missed payments on behalf of consumer clients and other potential abuses, according to regulators.
The 40-year-old Consumer Credit Counseling Service of Utah, one of the founders of the National Foundation for Credit Counseling, was seized by the Utah Division of Consumer Protection in March in a search for over $60,000 in missing funds. Though a judge returned control of the agency to its beleaguered leadership-which allegedly included at least one credit union representative-CCCS-Utah shut its own doors last week.
Credit unions across the country have partnered with a variety of consumer credit counseling groups in an effort to promote financial literacy and help keep members from filing bankruptcy by hooking them up with one of the not-for-profit organizations designed to help consumers reorganize their debt load without going bankrupt.
In the wake of the Utah CCCS scandal, Congress, the Federal Trade Commission and others are scrutinizing the industry, which is largely unregulated, as a whole.
The Coalition for Responsible Credit Practices, which is made up of consumer credit counseling agencies and supporting businesses, has issued a white paper calling for reforms to the industry-a bid at self-policing of the industry by the industry to avoid the regulatory yoke that some observers have suggested is necessary.
"Credit unions definitely should pay attention to the mess out in Utah," said Darrel McKigney, executive director of the CRCP. "It's still in dispute about who was actually on the board of that organization. In fact, the IRS filings show that the very regulator who shut the place down was actually on the board, though she denies ever having agreed to serve on it. There's a credit union president who was also listed on that board. The lesson for credit unions is that if you're going to be involved with one of these organizations, you've got a real responsibility. There are enough of these incidents happening around that country that it's become a real hot potato."
So, how does a credit union know if its partnering with a "good" credit counseling group? "There are accreditations in the industry, but it's not enough to just look for those accreditations," McKigney offered, noting that federal legislation-instead of a patchwork quilt of state laws-is what the CRCP would like to see to help implement a more workable situation. "In a lot of cases, it's not that we need new legislation, it's that we need to undo some of the existing legislation. Most of these organizations are 501(c)3 nonprofits, which is why they generally aren't regulated, and they're nonprofits, in most cases, because they have to be. The industry should be opened up to regulated, for-profit businesses."
CUNA is determined that credit unions will have a voice in this process. "The state credit union subcommittee is reviewing a number of state bills and model bills that have been proposed to address this issue," Kelly explained. "When lawmakers in a number of states were looking at predatory lending legislation, we offered some guidelines and input, and one of the things credit unions promoted was credit counseling. When some of these allegations [against credit counseling groups] started coming out, we knew we needed to look at this issue, since we have been promoting financial literacy and consumer credit counseling."
The CUNA subcommittee is still working through it and will be meeting in a few weeks. "One issue we'll be looking at is how to flag the right type of agency for credit union members in need of credit counseling," Kelly commented. "We also want to make sure that any bill allows these groups to do what they need to do. We'll check in with the Consumer Federation of America as well as the National Conference of Commissioners for Uniform State Laws to monitor their work and try to get our input to them before they finalize anything."
Both NAFCU and NCUA also indicated they are monitoring the situation, as well.