Debt-Management Services Act

The Uniform Debt-Management Services Act was originally passed in 2005 as a means to regulate the growing debt-management industry in the United States. The Act provides parameters for certifying debt-management companies at the state level, enumerating rights for debtors and empowering state officials to enforce the regulations contained in the law.

Business Registration

The Uniform Debt-Management Services Act requires a business operating as a debt-management company to register with the state it intends to do business in before it may legally enter into an agreement with any debtor living in that state. Registration materials include: information relating to the company's service methods, the financial health of the business, history of doing business in other jurisdictions, proposed business locations where services will be offered and a sample of documents intended for use as agreements between the company and debtors. To complete registration, a debt-management company is required to obtain an insurance policy against fraud, theft and dishonesty valued at no less than $250,000. The business is also required to provide a security bond valued at $50,000 with the state administrator as the beneficiary, as of 2011. Renewal is required yearly.

Disclosure Agreements

A debt-management company is required to submit a document to a debtor containing full disclosure of any fees to enter into the debt-management service, a description of services provided and any risks or benefits of entering into the plan before an a formal agreement may be reached. The debt-management company is required to offer debt counseling services from a certified counselor or debt-management specialist to the debtor as a condition of the agreement. Any debt-management plan created for the debtor requires the input of a certified counselor or debt specialist.

Right to Opt Out

A debtor retains the right to opt out of any debt-management agreement within three days of signing the contract at no penalty. A debtor may still exercise this right within 30 days of signing the agreement, however, the debt-management company may assess a cancellation fee. Alternatively, if the debtor is 60 days delinquent in his obligation to pay the debt-management company, the firm may terminate the contract.

Payments and Penalties

The law requires a debt-management company to hold funds obtained from a debtor in a trust account until the funds are disbursed to creditors. It is illegal to use debtor funds for any payments other than those expressly identified in the debt-management contract. To enforce these regulations, the state administrator -- where a debt-management company is operating -- requires regular financial reports and strict accounting standards to verify how debtor funds are used. A state administrator retains investigative powers to look into a debt-management company's finances and the power to assess a civil penalty of up to $10,000 if a violation is discovered, as of 2011.