WASHINGTON (2/4/08)—Credit unions and other interested parties have until April 1 to comment on a Justice Department (DOJ) proposal regarding credit counseling for consumers filing for bankruptcy. The proposed rule would set the procedures and criteria U.S. Trustees would use to review applications of those seeking to provide approved nonprofit budget and credit counseling under 2005 statutory revisions to the bankruptcy code. The Bankruptcy Abuse Reform Act was signed into law April 20 of that year. It requires that every individual debtor receives counseling from an approved nonprofit budget and credit counseling agency sometime during the 180 days prior to their filing for bankruptcy relief. It also requires that they receive debtor education training after they file. If approved, the DOJ proposal, published in the Feb. 1 Federal Register
, would supersede its earlier interim final rule published in July of 2006. The new plan has contains several changes to the interim proposal, as well as enhanced consumer protections, according to DOJ. The most significant changes to the interim include:
* Adding identification procedures for clients when accessing Internet or telephone counseling sessions; * Establishing a limit for credit counseling fees to be presumed reasonable; * Preserving clients' rights under 11 U.S.C. 502(k); * Requiring agencies to provide additional counseling at no extra cost to clients when a debt repayment plan has been completed or terminated so that clients may file bankruptcy if they so choose; * Providing guidance on agencies' responsibilities to individuals with limited English proficiency; and * Requiring appropriate disclosures be made before providing services to clients, such as an agency's fee policy and the prohibition from receiving referral fees.
The proposed rule clarifies the U.S. Trustees’ previous position that creditors, such as credit unions, that wish to become an approved credit counseling agency may not provide counseling services to any client (member) that has a loan with the creditor. A 2007 Government Accountability Office report questioned the value of the bankruptcy counseling requirement. It said anecdotal evidence suggests that by the time most clients receive the counseling, their financial situations are dire, leaving them with no viable alternative to bankruptcy. However, the Credit Union National Association (CUNA) backs pre-filing counseling for consumers and pre-discharge financial education as a way creditors can work much earlier with borrowers than when they are so overwhelmed as to be on the verge of bankruptcy. Use the resource link below to read the DOJ proposal.