WASHINGTON — CUNA recently suggested to the U.S. Trustees thatwhile credit unions cannot directly provide bankruptcy creditcounseling services to their members filing for bankruptcy becauseof the potential conflict of interest, CUSOs should beconsidered.

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Under the new bankruptcy system, debtors must complete approvedcredit counseling before filing for bankruptcy. “Even though creditunions under an interpretation from the U.S. Trustees office can'treally perform that counseling function directly themselves we'resuggesting to the Trustees themselves that nonprofit CUSOs beallowed to be formed in order to provide those kinds of services,”CUNA Deputy General Counsel and Senior Vice President forRegulatory Advocacy Mary Dunn explained.

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CUNA's comment letter, delivered to the Executive Office of theU.S. Trustees, states, “We believe the formation of a nonprofitCUSO jointly owned by a number of credit unions may be a means toaddress the conflict of interest concerns of the Trustees Office.Under this situation, the employees of the CUSO, and not the creditunions, would be providing the bankruptcy counseling. This mayeliminate the conflict in those situations in which the membershave an outstanding loan with the credit union. Although werecognize that the Bankruptcy Act prohibits the board of directorsof these Agencies from having either a direct or indirect benefitfrom the outcome of the counseling, we believe it is possible thata CUSO could be structured that complies with this requirement, andwe would welcome the opportunity to discuss with the TrusteesOffice the possibility of a nonprofit CUSO qualifying as an Agencyunder the Bankruptcy Act.”

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CUNA added that credit unions will likely continue to providegeneral financial counseling and education services even thoughthey do not qualify as an official counseling “agency” and offeredto share information on these types of services.

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