Licensing requirements for debt service companies

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Definitions

Each of these companies differs in the services they provide. To help you determine which category your business belongs to, here are the definitions of each:

  • Credit Service Organization (CSO): Credit service organizations improve individuals’ credit situations for a fee.
  • Debt management: Debt management companies help people pay off their debts by consolidating their debts into one monthly payment, which is then split among their creditors. There may be some overlap with credit service agencies.
  • Debt settlement: Debt settlement is also called debt reduction, debt negotiation or debt resolution. Settlements are negotiated with the debtor’s unsecured creditors. There may be some overlap with credit service agencies.

Licensing requirements

Before your debt service company can begin operating in a state, research that jurisdiction’s specific licensing requirements. Although requirements vary from state to state, you will generally need to provide the licensing authority with the following:

  • Business plan
  • Financial review and credit check
  • Training documents
  • Certificate of good standing
  • Company organization chart
  • Fingerprints
  • Background check
  • surety bond

Every applicant is different, and all regulators reserve the right to request additional information from the business entity. In addition, individual advisors often need to be licensed, as well as the business itself.

If the state you are operating in does not have a debt service license requirement, check for other compliance tasks, such as obtaining a bond.

Typically, obtaining a debt management services license can take three to four months.

If you do business in one state but your business is domiciled in another state, you are treated as an out-of-state entity and will likely need to qualify overseas by registering your business with the Secretary of State. This process may require you to provide proof that you are licensed in your home state as a debt management company or your home state does not require a license.

Note: The states of Hawaii, North Carolina and Louisiana allow credit service agencies, but completely prohibit certain “debt adjustment” activities (including debt management and debt settlement ).

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