On Friday, November 14, 2008, the Executive Office for United States Trustees ("EOUST") issued for public comment a notice of proposed rulemaking setting forth procedures and criteria U.S. Trustees will use when considering applicants seeking to become approved providers of a personal financial management instructional course (the "Proposed Rule"). Comments are due by January 13, 2009.
Summary of Key Aspects of the Proposed Rule
In many respects, the Proposed Rule parallels the proposed final pre-filing bankruptcy counseling rule issued by EOUST earlier this year. For example, the application procedures are similar, as well as the procedures for denying or removing a provider from the approved list. Other similarities include, but are not limited to:
- the fee amount presumed to be reasonable and fee waiver criteria;
- the debtor identification requirements;
- the requirement that providers use the U.S. Trustee's Certificate Generating System;
- the prohibition against limiting a debtor's ability to seek redress from the provider for any malfeasance; and
- many of the mandatory disclosures before providing services.
Several changes to the July 5, 2006 Interim Final Rule applicable to bankruptcy debtor education providers are proposed in the Proposed Rule, along with other changes to enhance consumer protection. Some of the more significant changes include the following:
- adding identification procedures for debtors when accessing Internet or telephone instructional courses;
- establishing a limit of fifty ($50) dollars, to be periodically reviewed by EOUST, for instructional course fees to be presumed reasonable (EOUST proposes to require providers to notify EOUST of any additional charges prior to implementing the additional fee and to require justification of the additional amount);
- providing guidance on providers' responsibilities to individuals with limited English proficiency; and
- requiring appropriate disclosures be made before providing services to debtors, such as a provider's fee policy and the prohibition on paying or receiving referral fees for the referral of debtors, except to a locator service.
The Proposed Rule also includes a number of important restrictions on providers of debtor education, including, but not limited to, restrictions relating to: referral fees, commercial advertising as part of or during the debtor's receipt of an instructional course, the marketing or sale of financial products or services during the instructional course (the Proposed Rule makes clear this restriction does not apply generally to the discussion of all available financial products and services), and the sale of information about any debtor to any third party without the debtor's prior written permission.
EOUST noted that it consulted with the Federal Trade Commission and with the Internal Revenue Service in drafting the Proposed Rule and that EOUST does not believe the rule has an adverse effect upon either agency.
The Proposed Rule is published in the Federal Register at 73 Fed. Reg. 67435-67444 (Nov. 14, 2008). The Proposed Rule and the notice of proposed rulemaking that addressed pre-filing bankruptcy counseling by nonprofit budget and credit counseling agencies (comment period closed April 1, 2008) can be found online at http://www.usdoj.gov/ust/eo/bapcpa/proposed_rulemaking/index.htm.
Current Interim Final Rule
Note that debtor education providers remain subject to the July 5, 2006 Interim Final Rule (71 Fed. Reg. 38076), titled, "Application Procedures and Criteria for Approval of Nonprofit Budget and Credit Counseling Agencies and Approval of Providers of a Personal Financial Management Instructional Course by United States Trustees," until the Proposed Rule becomes effective. The instructional course provisions are currently codified at 28 C.F.R. 58.25, 58.26, and 58.27.
Effective October 17, 2005, with limited exceptions, individual debtors under chapters 7, 13, and in some instances, chapter 11, must receive from an approved provider an instructional course concerning personal financial management before they can receive a discharge of their debts. See 11 U.S.C. §§ 111, 727(a)(11), 1141(d)(3)(C), 1328(g)(1).
Section 111(b) of title 11, U.S. Code, governs the approval by U.S. Trustees of providers of a personal financial management instructional course for inclusion under 11 U.S.C. § 111(a)(1) on publicly-available provider lists in one or more U.S. District Courts. Section 111 of title 11 provides that, in applicable jurisdictions, a U.S. Trustee may approve an application to become a provider of an instructional course only after the U.S. Trustee has thoroughly reviewed both the applicant's qualifications and instructional course. See 11 U.S.C. § 111(b)(1). A U.S. Trustee has statutory authority to require an applicant to provide information with respect to such review. See 11 U.S.C. § 111(b)(1).