The passage of the bankruptcy reform bill is mostly discussed in terms of what it will mean in fighting those who abuse the system.
But within the bill is another component with which every credit union will have to deal-mandatory financial counseling for filers.
What sounds admirable on its surface belies the fact many CUs will have to be careful in the financial counseling agencies recommended to members.
During 2004 the Federal Trade Commission filed 70 suits against credit counselors that allegedly acted improperly and there have been settlements with fines against three debt-management companies accused of misleading consumers to obtain $100 million in revenue.
The NCUA, CUNA, and NAFCU said they are awaiting the final language of the regulations derived from the Bankruptcy Reform bill which was signed by President George W. Bush in April and which will take effect six months from the date of signing. The regulations will detail how to enforce the law.
"The way the legislation is laid out, it is going to require U.S. trustees in each bankruptcy district to approve the not-for-profit credit counseling agencies that will offer services to consumers filing for bankruptcy," noted Murray Chanow, director of political affairs at NAFCU. "Not anyone will be able to offer these services."
Credit unions will be protected as trustees but will have to approve credit counselors. "They did put that into the legislation," he said.
Courts and the Department of Justice will thus have the responsibility for approving the counselors. "I imagine at some point there will be some kind of guidance put out about what credit counseling agencies have to do," he said. "When a consumer goes to court a trustee will be assigned to the case."
Asked whether the law would allow CUSOs to act as credit counselors, he said that it must still be defined.
"We have to wait for Justice to come out with guidelines," he said.
Chanow expects to see the proposed regulation published within three months so it can be reviewed, and changed if necessary, before it becomes law in six months, Chanow said.
Meanwhile, CUNA is working through many of the same issues.
"We are going to be working on what actions CUNA is going to take on the regulatory front to implement the law," said CUNA Spokesperson Pat Keefe.
Preparing a "white paper" that would serve as a draft on the actions CUNA is going to take would take "at the most" a month, he said.
"Then we are going to start talking to credit unions on what they can be doing" to get ready for implementing the law, Keefe added.
