On May 22, 2009, President Obama signed into law the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the “Credit CARD Act of 2009” or the “Act”), Public Law No: 111-24. The Act is intended to crackdown on certain credit card practices perceived as abusive – such as retroactive interest rate increases, "double cycle" billing and the offering of "fee harvester" cards. For credit counseling agencies and those that advertise and market debt management plan services to consumers, the Act is notable in three primary ways:
First, the Act requires that, not later than six months following enactment, the Federal Reserve Board, in consultation with the Secretary of Treasury, must issue guidelines for the establishment and maintenance by creditors of a 1-800 telephone number for purposes of providing information about “credit counseling” and “debt management services,” which terms are not defined in the Act. Creditors must place the toll-free number on credit card statements. The Act provides that only those counseling agencies that are approved by a United States bankruptcy trustee pursuant to Section 111(a) of Title 11 of the United States Code are eligible to participate in the 1-800 number.
Importantly for the credit counseling community, the Act leaves a number of specifics regarding the rules for the toll-free number to the upcoming rulemaking. For example, unanswered questions include:
- What additional criteria will be required to be included as an agency accessible through the toll-free number, if any?
- What is the intended relationship between the creditor sponsored toll-free number and the U.S. Trustee Program and Bankruptcy Administrators?
- In which other ways will the toll-free number be promoted?
- How many different telephone numbers are permitted?
- Will creditors be allowed to continue to make direct referrals outside of the toll-free number that will be established under the Act?
- What will be the call routing structure of the toll-free number? For example, will the toll-free number provide warm transfers of telephone callers to approved agencies?
At present no rulemaking has been announced, but one should be expected shortly.
Under the bankruptcy law, for required pre-filing counseling, tax-exempt status under Section 501(c)(3) of the Internal Revenue Code is not required for approval as a budget or credit counseling agency. However, nonprofit status (typically incorporation as a nonprofit corporation) is a prerequisite, among other requirements. In addition, no particular accreditation or trade association membership is necessary for approval as a budget or credit counseling agency, the disclosure of such accreditation or membership is required.
The Department of Justice’s U.S. Trustee Program approves organizations which provide the mandatory credit counseling under the bankruptcy law. By law, the U.S. Trustee Program does not operate in Alabama and North Carolina; in these states, court officials called Bankruptcy Administrators approve pre-bankruptcy credit counseling organizations and pre-discharge debtor education course providers.
The application forms and related materials can be found online at http://www.usdoj.gov/ust/eo/bapcpa/ccde/index.htm.
Second, as part of the increased protections for young consumers, the Act includes an expression of the sense of Congress (non-binding) that each institution of higher education should consider adopting policies relating to credit cards, including that credit card, debt education and counseling sessions be offered as a regular part of any orientation program for new students.
Third, as significant as the Act may be viewed in regard to the access to counseling it allows, the numerous studies required under the Act suggest that Congress is not yet done with its reforms. For example, within 180 days of the effective date of the Act, the Comptroller General of the United States is required to conduct a study of interchange fees and their cost to consumers in terms of merchant pricing. The Act also requires that two studies on financial literacy be conducted by the Secretary of Education and the General Accounting Office, in addition to two studies analyzing the effect of the Act’s changes to the Truth in Lending Act on the availability of credit.
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For credit counseling agencies and debt management plan providers, the Act will have an effect on counseling and education programs. From the added importance placed on the approved bankruptcy counseling status to financial literacy studies, the Credit CARD Act of 2009 changes the credit counseling landscape significantly.