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Debt relief resources in California
Read up on the rules to make sure the company you're considering is legit.
California has some of the tightest consumer protections when it comes to debt relief companies. But it doesn't cover everything. Make sure to thoroughly vet a company before you sign up — and be aware of all your options.
Compare debt relief companies
Use this table to compare debt relief services. Just double-check that they're licensed to do business in California.
Debt relief regulations in California
California regulates debt relief companies under the Check Sellers, Bill Payers and Proraters law. All debt relief companies must be licensed, with the exception of law firms and some nonprofits. Here's what you need to know as a consumer.
Service fee caps
The state caps how much debt relief companies can charge for their services, depending on how much debt you enroll in a program.
Debt relief companies can't charge more than 12% of the first $3,000 you enroll. On the second $2,000 enrolled, California caps fees at 11%. On any additional debt, fees can be no higher than 10%.
Let's take a look at an example …
Say you enrolled $10,000 in a debt relief program. You'd pay up to 12% on $3,000 of that amount, or $360. Then you'd pay 11% on $2,000 of your debt, or $220. And you'd pay 10% on the remaining $5,000 or $500. That adds up to a maximum total of $1,080.
In this case, that's equal to 10.8% of the debt you enrolled — and the more you enroll, the closer the maximum percentage is to 10%.
Additional fee limitations
California regulates how much debt relief companies can charge in additional fees.
- Origination fees. Debt relief companies can't charge more than $50 at the signing of the contract.
- Payment fees. Fees for the service of making recurring payments to creditors are capped at $4 per disbursement.
- Recurring fees. California caps fees for any other recurring obligation at $1.
- Cancelation fees. It's illegal for debt relief companies to charge a cancelation fee if you decide to discontinue the program.
Your debt relief company also can't start charging fees until after it's negotiated at least 51% of your enrolled debts.
Unlicensed nonprofits have fee limits too
Nonprofit credit counseling agencies can be exempt from California licensing requirements — and therefore these regulations. But California still caps the fees they can charge.
- Credit counseling fee limit: No more than $50 for an education or credit counseling session.
- Debt management fee limit: Either 8% of the amount it pays to creditors per month or $35, whichever is less.
- Debt settlement fee limit: Up to 15% of the amount forgiven — not to be confused with the amount you enroll.
Any credit counseling agency that charges above these fee limits is required to have a license.
Debt relief companies are required to refund any origination fees if you haven't canceled or defaulted on their contract after the first year. They're also required to put at least 70% of the funds that you give to the debt relief company toward your creditors each month.
If your debt relief company charges more than allowed, including any fees before it's allowed to charge a fee, your debt relief contract is considered void. That means you're entitled to a full refund.
All contracts must contain the following information at a minimum:
- List of all debts that will be enrolled, with creditors names and the amount owed
- Outline of the terms of payment, which must be within your means
- Cost and terms of any fees
- Exact number and amount of installments you must pay to get out of debt
- Name and address of the debt relief company and yourself
Legally, your contract cannot contain any blank spaces that the debt relief company can go back and fill in. It's also illegal for your debt relief company to require collateral, power of attorney or confession of judgement. Debt relief companies can't appear on your behalf in legal proceedings.
Watch out for companies that don't meet these criteria:
- Updates. Every six months, debt relief companies must give you a report on your accounts. It also must respond to a written request for an update within seven days.
- Lending and collections. Debt relief companies can't offer credit — like debt consolidation loans — or act as a collections agency.
- Referrals. These companies can't offer cash or any other kind of compensation for customers who refer another customer.
- Insurance. It's illegal for debt relief companies to require you to buy insurance, such as life insurance.
- Legal advice. Licensed debt relief companies can't provide legal advice or perform legal services.
- Experience. At least one person working in a licensed debt relief organization must have at least five years of experience working in consumer credit or collections.
Debt relief is a catch-all term for products and services that can help you manage and pay off debt. Here's how they work for California residents.
- Debt consolidation. Taking out a loan or opening a credit card to pay off your debts at a lower rate can be a helpful way to reduce your debt costs and get out of debt faster. These are available at personal loan providers and credit card companies.
- Credit counseling. This involves setting up a meeting at a credit counseling agency to identify the source of the problem and come up with a plan to get out of debt. This is often available for free, but in California nonprofits can charge up to $50 for this service.
- Debt management. With this option, a credit counseling agency or licensed debt relief company will negotiate with your creditors to lower your rates and monthly repayments. Some also offer a service to pay creditors on your behalf.
- Debt settlement. A more extreme option, debt settlement involves hiring a company to negotiate down your balance in exchange for a one-time payment. In California, credit counseling agencies and licensed debt settlement companies offer this service.
How to find a legit debt relief company
California's regulations make it relatively easy to check the legitimacy of a debt relief company. You can check if a debt relief company is licensed in California by searching a list published on the Department of Financial Protection and Innovation (DFPI) website. The DFPI also publishes a list of credit counseling agencies that qualify for a licensing exemption.
Before you sign up with a licensed company, do some due diligence:
- Double-check its legitimacy. Familiarize yourself with the regulations and make sure the company follows them, paying careful attention to fees.
- Read reviews and complaints. Read what customers have to say on sites like the Better Business Bureau (BBB) and Trustpilot.
- Look for past lawsuits. Do a quick google search to make sure it hasn't been subject to any government actions or lawsuits for violating regulations. You can sometimes find these on their BBB profiles.
- Check accreditation. Most legitimate debt relief companies are accredited with the American Fair Credit Council or the International Association of Professional Debt Arbitrators.
California debt statistics
The average California resident is struggling with debt. The median household debt-to-income ratio was 1.63 in 2019, according to the Federal Reserve. This means the median household has bills worth 1.63 times the amount of money coming in each month. On average, Californians have a total of $73,400 in debt per capita.
Here's how that breaks down:
- Car loans: California residents owe an average of $4,710 in auto loans — and some 4.89% of these loans are delinquent by 90 days or more.
- Credit cards: Californians carry $3,810 in credit card debt per capita. And about 8.7% of credit card holders are at least 90 days late on a payment.
- Mortgages: Mortgages are the highest source of debt in California, reaching $57,170 per capita. And only 0.58% of mortgage accounts are 90 days behind.
- Student loans: Student loans are not a high source of debt, compared to other states. Californians have $4,640 per capita in student debt — though 9.63% of these accounts are delinquent.
California's regulations make it easier to avoid debt relief scams and predatory companies. But debt relief might not always be the right choice — even if the company you're working with technically follows the rules. Read up on your debt relief options and alternatives before you sign up for a program.
Frequently asked questions
How do I file a complaint against a debt relief company in California?
You can file a complaint with the DFPI online or by mail. Both complaint forms are available on the DFPI website. Send mail-in complaints to the following address:
Department of Financial Protection and Innovation
Attn: Consumer Services
2101 Arena Boulevard
Sacramento CA 95834
Does California have any state-sponsored debt relief programs?
No, California doesn't have any debt relief programs for general consumer debt. It also doesn't have any state debt relief programs to help with residents impacted by the coronavirus or wildfires. But banks, local governments and private organizations might offer assistance, depending on your personal situation.
What is a prorater?
A prorater is a term California uses to refer to companies that offer debt settlement and debt management in legal documents. A prorater is someone who acts on the behalf of a debtor when it comes to making payments to your creditors.
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