WASHINGTON-As promised, President George W. Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act (S. 256) into law last week after eight years in the making. "I commend the House for acting in bipartisan fashion to curb abuses of the bankruptcy system," President Bush said upon House passage of the bill April 14 by a vote of 302-126. "These commonsense reforms will make the system stronger and better so that more Americans – especially lower-income Americans – have greater access to credit. I look forward to signing the bill into law." S. 256 previously passed the Senate March 10 by a vote of 74-25. The House and Senate bills were identical, avoiding a conference committee, which has been a sticking point in the past. Credit union organizations had their eyes on establishing a meaningful means test, mandatory financial counseling prior to filing, and maintaining voluntary reaffirmations for credit union members, all of which were maintained. "This was a major legislative victory and credit unions played a very strong, very instrumental role in its passage," CUNA Vice President of Legislative Affairs and Senior Legislative Counsel Gary Kohn stated. "We were one of actually two groups that were consistent in their grassroots activity on this bill and we actually deserve a lot of credit for its passage." House Judiciary Chairman Jim Sensenbrenner (R-Wis.) even cited CUNA statistics on the House floor that 40% of credit union losses in 2004 were due to bankruptcies. NAFCU Director of Political Affairs Murray Chanow noted that there is a six-month waiting period before the bill finally becomes law. "There will be a lot of adapting for all financial institutions getting ready for the rollout of this thing, which should be toward the end of this year," he said. The Justice Department will be coming out with the implementing regulations, according to Chanow. A Community Divided Though the credit union trades were united behind the bill, it had the credit union community torn. State Employees Credit Union CEO Jim Blaine had been strongly opposed to S. 256, which he said "did not impose comparable responsibility on the lenders as it did the borrowers." But, he accepted the will of Congress graciously, though, stating, "I hope it does what everybody hopes but, of course, I have my doubts." Blaine said the provision requiring financial education courses prior to filing for bankruptcy protection "sounds good on paper," but predicted that bankruptcy filings will not diminish because much of the problem is caused by unscrupulous lenders. He added that predatory lending legislation could possibly help round out this inequity. "The worst of the breed out there is lenders that seek to impoverish people," Blaine commented. At State Employees Credit Union, he said, charge-offs are at about 0.2% with maybe half of those coming from bankruptcies. And, he emphasized, the credit union has seen very little fraud among the filings. "We all anticipate a surge in bankruptcies," he said following the bill's passage. State Employees plans to continue to recommend the BALANCE credit counseling for its members, as it has over the past five years. Blaine stressed that the credit union has told the company that if filing for bankruptcy is really what the member needs then recommend it. On the other hand, South Carolina Federal Credit Union backed the bill and remained active throughout the legislative process through the state league. Everyone is a winner with this legislation, according to the credit union. South Carolina Federal Credit Union President and CEO Scott Woods commented, "We support this legislation. Reforms in this law will benefit all consumers. We've seen record losses from bankruptcy cases in the last decade, and the burden has been passed on to the consumer in the form of higher prices. Every consumer pays for abuse of the bankruptcy system." After the House vote, Wisconsin credit unions were already gearing up their financial education efforts, which already take credit for much of the state's success in educating residents on saving, credit and other financial issues. Wisconsin's Kenneth Beine, president of Shoreline Credit Union, represented CUNA in testimony before the Senate Judiciary Committee in February on S. 256. In his testimony, he said needs-base bankruptcy reform benefits debtors as well as lenders by preserving access to reasonably priced credit, particularly for those who reaffirm their debts with their credit unions. NCUA Chairman JoAnn Johnson (R-Iowa) also commended the House for pushing the bankruptcy abuse reform bill over the goal line. "With today's passage of reforms to the bankruptcy laws in the House of Representatives, the nation's credit unions are a major step closer to realizing greater protections, as well as ensuring consumers will have continued access to affordable credit and financial services. I commend Senator Grassley for his leadership on this important issue. Senator Grassley has expressed to me that the strong support of the credit union community significantly helped move this legislation toward enactment. I value the service of credit unions across America for their role in providing low-cost financial services. This bill will solidify the accessibility of credit for Americans from all walks of life." While the key aim of the bill-to curtail abusive bankruptcy filings-would help make credit unions more safe and sound, NCUA also had a much narrower objective with the `netting provisions' that ease the closing of a failed credit union. "The bill passed also makes important revisions to the Federal Credit Union Act for federally insured credit unions with respect to how the NCUA would manage the termination, transfer and netting of financial contracts (derivatives) in the event of a liquidation or conservatorship," Johnson explained. "The NCUA was successful in having these provisions added to the bankruptcy legislation in 2003 in the House of Representatives." This year, Grassley had it inserted into the Senate version of the bill as well. After eight years in the trenches of the battle for bankruptcy reform, not many can be more pleased than House Judiciary Chairman Jim Sensenbrenner (R-Wis.) to see the bill signed into law. "America's bankruptcy system was established to help provide a fresh start for individuals who are truly in tough financial straits," he stated. "People who were down on their luck were offered a second chance. But, when people who have the ability to pay their bills don't do so, all Americans suffer." He cited statistics that American households pay "a hidden $400 annual `tax'" because of abusive bankruptcy filings. "Central to this legislation is a merit-based test that reflects the common sense proposition that those who are capable of repaying their debts after seeking bankruptcy relief must actually repay their debts. This legislation applies an income and expense analysis to verify whether a debtor has a demonstrated ability to repay the majority of his or her debts," Sensenbrenner explained. "If it is resolved that the debtor has the ability to repay, he or she will be directed into a form of bankruptcy relief that requires repayment." He also noted the consumer protections included in the bill that require certain disclosures from credit card companies and provide bankruptcy reorganizations assistance to family farmers. Bankruptcy reform is one area on which credit unions and banks were in agreement. Edward L. Yingling, executive vice president of the American Bankers Association, stated, "The bankruptcy reform bill passed today will protect and improve our nation's financial safety net. It will ensure that bankruptcy protection is fully available for the neediest Americans, while reining in some filers who wrongly use the system as a financial planning tool. "Eight years of debate has resulted in a carefully crafted compromise that is fair and helpful, and Congress should be proud of both the process and the results." Known for their `rubber ducky' ad campaign bashing credit unions last year, America's Community Bankers was in sync with the credit union industry on this issue. "This bill is a `win' for consumers and a `win' for community lenders by providing appropriate protections for those who need it, but also requiring those who can repay all or part of their debts to do so," ACB President and CEO Diane Casey-Landry commented. ICBA President and CEO Camden R. Fine also praised Congress for passing S. 256. "This bill will restore the principles of fairness and personal responsibility to our bankruptcy system, while protecting and enhancing the rights of consumers," he commented. Strong Opposition Despite its bipartisan passage, the bill faced solid opposition lobbying until the last minute. AFL-CIO President John Sweeney stated that the bill "sends a dangerous signal to working families that Congress will systematically gut protections for workers who have lost jobs or face crushing medical bills. The bill is a one-sided attempt to favor creditor interests and increase the burden for families who are trying to recover from severe financial setbacks." Consumer Federation of America Legislative Director Travis Plunkett charged, "This bill simply doesn't balance responsibility between families in debt trouble and the creditors whose practices have contributed to the rise in bankruptcies. While credit card companies urge Congress to erect new bankruptcy barriers for many families, their profits are soaring." Ed Mierzwinski, Consumer Programs Director of the U.S. Public Interest Research Group, said, "By making it harder for consumers to wipe away abusive loans in bankruptcy, this bill rewards the bottom feeders in the lending industry." Other groups, such as the National Consumer Law Center, Consumer Action and Consumers Union, made similar statements. [email protected]