CUNA Comment Letter
Application and Criteria to Serve as Financial Counselors and Instructors
September 5, 2006
Executive Office for United States Trustees
Credit Counseling Application Processing
20 Massachusetts Avenue, NW
Washington, DC 20530
Dear Sir or Madam:
The Credit Union National Association appreciates the opportunity to comment on the interim final rule that outlines the application procedures and standards to be used by the Executive Office for United States Trustees (Trustees Office) for approval of nonprofit budget and credit counseling agencies (Agencies) and approval of providers of personal financial management instructor courses (Providers). Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Bankruptcy Act), individual debtors are required to consult with an approved Agency within 180 days prior to or before filing for bankruptcy. The debtors are then required to consult with an approved Provider after filing for bankruptcy, but before receiving a discharge of their debts. CUNA represents approximately 90 percent of our nations 8,800 state and federal credit unions, which serve nearly 87 million members.
Summary of CUNAs Comments
- Although we understand that the Trustees Office will not allow credit unions to act as an Agency if the member has an outstanding loan with the credit union out of concern that there could be a conflict of interest, credit unions have and will continue to provide general financial counseling and education services, even though they will not qualify as an Agency.
- One possibility for credit unions with regard to providing counseling within the 180 days prior to the bankruptcy filing, and qualifying as an Agency under the Bankruptcy Act, is the formation of a nonprofit credit union service organization (CUSO). This may address the concern of the Trustees Office regarding the conflict of interest when the members have an outstanding loan with the credit union.
- It is also our understanding that credit unions will be able to qualify as a Provider under the Bankruptcy Act as the conflict of interest concerns would not apply in the situation in which the member is seeking a discharge of his or her debts.
DISCUSSION OF CUNAs COMMENTS
It is our understanding from earlier discussions between CUNA and the Trustees Office that credit unions would not be eligible to act as an Agency under the Bankruptcy Act if the member has an outstanding loan with that credit union. Although we understand the concerns of the Trustees Office that there could be a conflict of interest in such a situation, credit unions have a proud history of providing financial counseling and education for their members in all situations, including those unfortunate times when bankruptcy is being considered. We believe credit unions will continue to provide counseling in these situations even though credit unions will not qualify as Agencies under the Bankruptcy Act. We will be happy to share with the Trustees Office information about these types of services that credit unions provide to their members.
One possibility for credit unions with regard to providing counseling within the 180 days prior to the bankruptcy filing, and qualifying as an Agency under the Bankruptcy Act, is the formation of a nonprofit CUSO. CUSOs are organizations that can be owned by one or more credit unions that provide financial services and operational services primarily to credit unions and their members. CUSOs may be in the form of a corporation, limited liability company, or limited partnership in which a credit union has an investment or loan.
We believe the formation of a nonprofit CUSO jointly owned by a number of credit unions may be a means to address the conflict of interest concerns of the Trustees Office. Under this situation, the employees of the CUSO, and not the credit unions, would be providing the bankruptcy counseling. This may eliminate the conflict in those situations in which the members have an outstanding loan with the credit union. Although we recognize that the Bankruptcy Act prohibits the board of directors of these Agencies from having either a direct or indirect benefit from the outcome of the counseling, we believe it is possible that a CUSO could be structured that complies with this requirement, and we would welcome the opportunity to discuss with the Trustees Office the possibility of a nonprofit CUSO qualifying as an Agency under the Bankruptcy Act.
It is also our understanding that credit unions will be able to qualify as a Provider under the Bankruptcy Act as the conflict of interest concerns would not apply in the situation in which the member is seeking a discharge of his or her debts. Again, credit unions currently provide these types of services and will continue to do so as they believe this is an important civic and social responsibility, especially as a means to counter efforts of predatory lenders that may try to take advantage of consumers in these vulnerable situations. Although smaller credit unions may not have the staff and resources that will enable them to meet the criteria for serving as a Provider, they will still continue to provide these vital services for their members in some form.
Thank you for the opportunity to comment on the interim final rule regarding these application procedures and standards. If you have questions about our comments, please contact Senior Vice President and Deputy General Counsel Mary Dunn or me at (202) 638-5777.
Senior Assistant General Counsel