Debt Services Businesses — Regulations Amid Growing Relevance

According to a report published last month by Experian, U.S. consumer debt grew to just under $15 trillion following the recession that began at the start of 2020*. During the pandemic, economic uncertainty led to more consumer borrowing, resulting in a decade-high 6% annual increase in outstanding consumer debt, with student loans and mortgages accounting for the largest increases in debt. With home prices at all-time highs and universities apparently unwilling to lower tuition rates, we can expect debt trends to continue, barring federal action on debt cancellation which seems a tenuous prospect.

With more Americans saddled with more debt than ever before, the services of debt management, debt settlement, and credit services businesses are certain to be in greater demand. These businesses offer consumers help in planning, managing, and consolidating debt, some even acting as agents of debtors for the payment of obligations to creditors. Others focus on credit scores specifically, offering counseling and plans to increase consumer credit scores over the course of the business relationship. As debt rises, the pool of clients and the value of debt management services is likely to rise with it.

With regard to regulation, most states require debt management firms to hold a state-issued license in order to charge fees for their services. Licensing usually involves background checks for owners and officers, surety bond obtainment, and financial reviews and credit checks, with application fees ranging from several hundred to several thousand dollars depending on the state. Often, individual counselors must be licensed as well as the business entity itself. But not all states require licenses — Alabama, Massachusetts, New Mexico, and others may have regulations relevant to this industry without an actual license requirement. Still other states — Hawaii, North Carolina, and Louisiana — might prohibit debt services activities altogether.

If you are a debt services company or are planning to start a business, it is important to know each state’s precise regulations relating to your activities. Aside from industry-specific state licensure, there may be federal hurdles, state tax registrations for which you are liable, and local business licenses which you may need to obtain in order to operate your business legally.

LicenseLogix has a team of industry experts to help navigate the motley regulations of the debt services industry. Whether filing for initial licensure, managing license renewals, or making major changes to your existing license portfolio, LLX will ensure your business is organized and compliant on day one and beyond. Contact us for a consultation.