Editor's choice: National Debt Relief
- No cancellation fees
- Low minimum to enroll
- No upfront fees
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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.
Use this table to compare debt relief services. Just double-check that they're licensed to do business 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.
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%.
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%.
California regulates how much debt relief companies can charge in additional fees.
Your debt relief company also can't start charging fees until after it's negotiated at least 51% of your enrolled debts.
Nonprofit credit counseling agencies can be exempt from California licensing requirements — and therefore these regulations. But California still caps the fees they can charge.
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:
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:
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.
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:
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:
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.
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