FEW, IF ANY, would disagree that Americans could use some financial education.
Steep levels of credit-card debt, inadequate retirement savings and even rising bankruptcy filings during good economic times indicate we can use some help with understanding finances.
Nevertheless, bankruptcy legislation that requires debtors to undergo credit counseling and financial education - believed to be the first federal mandate for financial lessons - raises some questions. Who will provide the counseling and education? How much will it cost consumers? And, in light of recent scandals among nonprofit credit counselors, will consumers be protected from unscrupulous players or be preyed upon again?
The Senate passed legislation last week making it harder for consumers to wipe out debt through bankruptcy court. The bill is expected to sail through the House next month, and the president has promised to sign it. The eight-year effort has been championed by banks and credit-card companies seeking tougher measures to stop people from abusing the system.
Under the legislation, debtors would be required to undergo credit counseling from a nonprofit agency within six months before filing for bankruptcy protection. The U.S. Trustee's office would draw up a list of approved agencies.
Credit-counseling agencies said their role would be to provide a budget analysis for debtors and to brief them on their options, including alternatives to bankruptcy.
If there are no adequate agencies in a district, the trustee can waive the counseling requirement.
Once debtors file for bankruptcy, their education doesn't stop. Before their case can be discharged, they would have to complete a course on how to manage finances. The Executive Office for U.S. Trustees also would provide guidance on the curriculum and materials used to teach debtors.
The counseling and the financial course can be done in person, on the phone or over the Internet. The legislation also requires that fees for these services must be "reasonable" or waived for those who can't afford to pay, said William Binzel, chief counsel for the National Foundation for Credit Counseling, which represents 120 agencies with more than 1,000 offices. The average cost of budget counseling among those groups is $15, Binzel said.
Consumer advocates say they aren't opposed to credit counseling and financial education, but they don't believe the bankruptcy court is the best delivery system.
Consumers need financial education in high school and college, long before they get into financial trouble, consumer advocates said.
By the time an individual files for bankruptcy, he has been struggling with debts for perhaps years and his finances are far too gone to be easily repaired by budgeting lessons.
"It's not a teachable moment. The teachable moment was a couple of years before," said Travis Plunkett, legislative director of the Consumer Federation of America. "The timing of this regulation is all wrong."
Academics who have studied bankruptcy add that financial education won't solve the common underlying causes of bankruptcy - a job loss or serious illness.
"How does a debtor-education class address those issues?" said Deborah Thorne, an assistant sociology professor at Ohio University and project director of the Consumer Bankruptcy Project, which researches bankruptcies. "They don't need a class on how to save a couple of bucks a month. They need stable jobs and health care."
Many, too, are wary of the nonprofit credit counseling industry that has been tainted by scandals of self-dealing and overcharging that left many of their clients in worse financial shape.
Maryland-based AmeriDebt, at one time one of the largest counselors in the country, ended up filing for bankruptcy protection last year after being sued by state and federal regulators for its questionable practices.
"The credit counseling industry is a troubled industry at the moment. You have to be very careful about any system that requires all consumers to participate in credit counseling when we don't have any assurance that there are quality providers," said Karen Gross, a New York Law School professor and founder of the Coalition for Consumer Bankruptcy Debtor Education, which teaches financial management to bankruptcy filers and others.
Critics, too, worry that the U.S. Trustee won't have the time or expertise to screen out bad agencies that will charge high fees.
Credit counseling agencies, though, say they are putting their trust in the court system so that doesn't happen.
"The safety net is that the bankruptcy trustees and courts themselves are going to have an approved list of nonprofit credit counseling agencies," said Jim Godfrey, executive vice president of the Consumer Credit Counseling Service of Maryland and Delaware.
Maybe so. But the government's track record isn't the best.
In the 1990s, the Internal Revenue Service freely awarded nonprofit status to hundreds of agencies that sprung up. Some of those nonprofits acted more like for-profit companies whose goal was to make the most money possible.
Critics complain that the IRS was far too slow to respond to consumer groups' complaints about shady agencies.
The bankruptcy legislation is almost certain to become law. Something else is certain, too. The government this time will have to do a much better job of protecting consumers.
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