California is the home of many consumer credit counseling and debt consolidation companies, as well as many consumers who use these services. With so many companies online and being advertised on television or radio, it is difficult to differentiate what type of debt program is actually being offered, as well as whether or not an organization is actually looking out for your best interests. The purpose of this section is to give a general overview of what types of debt management services are being offered and to give some insight on what laws are available to protect California consumers from the “bad actors” within the industry.

(Note: the following is for education purposes only and PayingPaul.Com makes no guarantees about the accuracy of anything contained herein. It is not complete and may not be up to date. For legal advice please consult with a lawyer licensed in California.)

Types of Debt Consolidation Services in California

For consumers who are looking for a reduction in their interest rates and help in organizing their debts, credit counseling may be a good option to consider. These services, known as debt management plans, are usually offered by not for profits and can help you get debt free within four to five years. Consumers should know, however, that using a non-profit does not ensure that the service will be affordable or legitimate.

Debt settlement, also known as debt negotiation, involves negotiating with unsecured creditors to lower the principal amount you owe. These program may be able to help you get out of debt within one to three years. Although you tend to save a lot more money in debt settlement, there are some disadvantages to using this type of service. Much of the downsides stems from the fact that you have to fall behind on your payments while in you are enrolled in the program in order to make your creditors willing to lower balance. Due to this fact, your credit will most likely be impaired, and it may result in escalated collections, such as creditor calls and even lawsuits.

Do you want to talk to a debt relief firm about their program? Submit a form today!

California Credit Counseling Info

California’s law regarding credit counseling or debt management is found in the state’s Financial Code (Proraters), and it requires companies in this business to register with the state.

Definition

California law differentiates between companies who handle and distribute consumer funds, usually credit counselors, and those that do not, usually debt settlement companies. In other words, only companies that handle the funds of the consumers are required to follow these regulations (although regulatory action taken by Department of Corporations suggests otherwise). If a consumer’s funds are held in a separate trust account, savings account or the like, then they would not qualify. It should also be noted that the law applies to companies that deal with consumers in the state, not just one’s based in the state.

Fees

Debt companies that fall under regulation are subject to the following fee limits:

Set Up or Counseling Fees: non-profit organizations cannot receive more than $50 for education and counseling in conjunction with debt management or debt settlement services.

Monthly Maintenance Fees: non profit organizations cannot receive more than the lesser of $35 or 8% of the money dispursed monthly to a client’s creditors.

Debt Settlement Fees: non profit organizations cannot receive a sum more than 15% of the debt forgiven. Moreover, they may only require payment of fees once the debt has been successfully settled.

Fees cannot be collected at all until the debt company has at least 51% of the creditors enrolled agreeing to the plan

Cancellation Fees: cancellation fees cannot be charged to the debtor


Exemptions

It should be noted that the law exempts, among others, attorneys and certified public accountants licensed in the state of California from these regulations. Non profits that meet certain criteria are also exempt.

For more information about regulations for this industry, read the following:

Califor nia Proraters

Having Problems

Have you tried resolving problems with your debt consolidation agency without much luck? Call 866-ASK-CORP to file a complaint.

Other Resources

Filing Bankruptcy in California

Bankruptcy Laws in California

Debt Collection in California