Debt Management FAQ
- When is a budget analysis required to be completed?
A budget analysis is required to be completed prior to entering into a contract with a debtor. A budget analysis must be updated when a creditor is added or removed from a debt management plan.
- Is the certified counselor required to sign the budget analysis?
The certified counselor is required to sign and date each budget analysis created for the debtor.
- When must the budget analysis be provided to the debtor?
The budget analysis must be completed in full and provided to the debtor before the contract is signed as required under Rule 6(3).
- May a licensee enter into a debt management plan with a debtor if the budget analysis shows the debtor's current monthly expenses exceed the debtor's net income?
The licensee may still enter into a debt management plan with a debtor if a written plan outlining how the debtor will meet the payment obligations under the plan is established. The licensee must maintain documentation of this written plan.
- What is meant by "...if the amount is available…" regarding real estate taxes on the Budget Analysis?
The debtor should be able to tell the licensee the amount of his/her real estate taxes if they are not included in escrow. Alternatively, the licensee can go to a tax source to obtain or verify the amount as required under Section 12(2)(d).
- The type and amount of all the debtor's obligations known to the debtor and not included in the plan must be stated on the budget analysis. What is meant by "Type"? How specific does the debtor's obligations descriptions need to be?
The licensee needs to identify the type of each obligation as required under Section 12(2)(e). A general description may be used as follows: credit card, unsecured loan, vehicle loan, secured loan, mortgage. Each obligation must be individually listed and obligations of the same type cannot be aggregated.
- A debtor must be provided a notice if consent is not obtained from at least 51% of creditors, in number or dollar amount, within 90 days of establishing a debt management plan. What is considered providing a "notice" to the debtor?
The notice required under Section 13(2) must be in writing and delivered by letter, e-mail, or fax. A notice to the debtor must identify: the creditors that did not provide consent; disclose 51% consent was not obtained; and state the debtor may, at their option, close the account.
- Does the "notice" provided to a debtor when consent is not obtained from 51% of creditors need to be maintained by the licensee? Is a telephone call an acceptable notice?
Yes, a copy of the notice must be retained. A written reply from the debtor stating they want to keep the account open is not required. No, a telephone call is not considered an acceptable notice.
- When is a contract in effect?
A contract is in effect when it is signed by the debtor and the licensee, and money is received for payment to a creditor. If a debtor requests changes to the debt management plan before the contract is in effect, a new contract must be signed.
- What other provisions must be included in a debt management contract to comply with Section 14(1)(f)?
The payment amount, the frequency of payments, and the total number of payments to be paid over the life of the contract.
- How must the fair share participating creditors be identified within the contract?
The list of creditors, included as part of the contract, must indicate which creditors participate in the Fair Share Program by utilizing a key marker (i.e. asterisk). The marker must be described so it is clear which creditors participate in Fair Share, and disclose the overall percentage range and/or average percentage range the licensee receives.
- What is required of a debtor to add or remove a creditor from the Debt Management Plan?
A debtor must submit a written request to the licensee to add or remove debt obligations from a contract as required under Section 14(3). The written request may be in electronic form.
- What must the licensee do to add or remove a creditor?
The licensee must prepare an updated budget analysis that complies with Sections 12(1) & (2) of the Act to ensure the debtor can reasonably fulfill the requirements of the debt management plan. The licensee may amend the contract if the licensee determines the budget analysis is suitable for the debtor.
Either a new contract or an addendum to the existing contract must be completed. The new contract or addendum must be in writing and signed by both the licensee and the debtor, and must restate the terms required under Section 14(1) of the Act.
- What is the rescission period available to the debtor for cancellation?
A debtor is entitled to cancel the contract until 12 midnight of the third business day after the first day the contract is in effect by delivering written notice of cancellation to the licensee.
- How should the initial (set-up) fee, cancellation fee, and the cancellation provisions be disclosed in the DMP Contract?
Every DMP contract shall include the initial (setup), cancellation fee provisions and amounts in the contract in bold type as required by Rule 20(3). The cancellation fee must be stated, even if the amount is zero. In addition, the contract must include the debtor’s right to cancel provision stated in Section 18(4) of the Act.
- If any obligations remain unpaid at the expiration of a plan, the licensee may extend the contract or enter into a new contract if it determines the plan is suitable for the debtor. How should a licensee determine if an extension is "suitable"?
The licensee may extend the contract and determine it is “suitable” by preparing and evaluating an updated budget analysis and executing a written extension or having the debtor sign a new contract.
- Is a licensee required to submit revised copies when its DMP Contract is amended?
No. The licensee is only required to submit copies of the DMP Contract at the time of application as required by Rule 6(4). Revisions are not required to be submitted to DIFS.
- What is required to be included in the monthly Trust Account Reconciliation?
The trust account(s) shall be reconciled at least monthly and no later than 45 business days after receipt of the bank statement as required under Section 15(3). The reconcilement may be completed electronically. The reconcilement must include a comparison between the bank balance and the sum of all clients’ escrow balances. A report which identifies each client account and the escrow balance must be available and provided upon request. Any client escrow accounts with negative balances must be excluded. The reconcilement must include a detailed breakdown of any differences between the bank balance and the clients’ escrow balances as required under Rule 21(1).
- How is a client's escrow balance calculated for purposes of completing the trust account reconciliation?
Each client’s escrow balance is calculated by taking the amount that has yet to be disbursed to creditors, add payments that are in transit (including any checks written to creditors which have not cleared the bank) and add any disbursements held by a third party pending disbursement to the creditors.
- What must a licensee do if it is determined a trust account does not contain sufficient funds?
The licensee must immediately notify DIFS by phone, fax or email of the deficiency and provide a description of the remedial action taken. Remedial action shall either be an immediate replacement of funds, or immediately ceasing business until the trust account contains sufficient funds.
- Must the trust account of the financial institution where payments received by a licensee from a debtor on behalf of a creditor be titled as "Trust Account"?
Yes, the account must be designated as a trust. The name on the account must indicate the account is a “Trust Account”.
- When is an additional bond required?
An additional bond is required when the trust account is maintained at a financial institution located outside of the State of Michigan. The licensee must furnish a surety bond in an amount that equals or exceeds 100% of the average amount of deposits held in the trust account from month to month as required by Section 15(6).
- How is the average amount of deposits held determined when calculating the amount of the additional bond?
The licensee must add together each month-end balance of the trust account(s) from September 30 to the October 1 of the previous year and divide this total by 12. This amount will represent the average balance in the account. However, the licensee must ensure the trust account is properly funded by accurately calculating the sum of the clients’ escrow balance.
- What are the requirements of the 90-day statements?
Statements are to be provided to debtors at least every 90 days after contracting with the debtor as required under Section 16(1)(f). This statement must be in writing (paper or electronic is acceptable) and include the following:
- The total amount received from and on behalf of the debtor (cumulative amount from inception of plan)
- The amount paid to each creditor (cumulative amount from inception of plan)
- The total amount of fees collected by the licensee (cumulative amount from inception of plan)
- The amount held in reserve (escrow balance) as of the statement date.
If a debt management plan becomes “inactive” (terminated, cancelled, completed) during the quarter, a final 90-day statement must be provided to the debtor.
- What are the requirements of the monthly statement?
Monthly statements are required to be delivered to the debtor beginning the first month after contracting with the debtor as required under Section 16(1)(d) until the contract terminates. The statement must include the following:
- The dates and amounts of monies received from the debtor during the month
- The dates and amount of monies disbursed on behalf of the debtor during the month
- The fees collected by the licensee during the month
If a debt management plan becomes “inactive” (terminated, cancelled, completed) during the month, a final monthly statement must be provided to the debtor.
- Can a monthly statement be used in place of a 90-day statement?
A monthly statement can be provided instead of a 90-day statement if it contains all provisions required in both the monthly and quarterly statements.
- What signage must a licensee post at the office, branch office or on a website?
Section 11(d) requires the licensee to conspicuously display the license in the outer office of the licensee and each branch office, if that office offers in-person services to Michigan consumers. If a licensee conducts business over the internet, the website must include a statement the entity is licensed in Michigan and state the license number. Postings at each office and on the licensee’s website must also include the provisions of Section 13(1) (which has been amended to Sections 13(1) and (2)), 14(1) and 18 of the Act, as well as the address and phone number of DIFS. These provisions must be in no less than 8-point font size in accordance with Rule 15(1).
- What is the amount of fees that can be charged under the Act?
A licensee may charge an initial fee of $50.00 as allowed under Section 13(1). In addition to the initial fee, a licensee may charge a reasonable fee for providing debt management services that does not exceed 15% of the amount of debt to be liquidated as allowed under Section 18(1). A licensee may offer debtors the option to purchase credit reports or educational materials and products and charge a fee to the debtor if the debtor elects to purchase any of those items; these fees are not subject to the 15% limitation on fees. If the licensee offers other services not specifically stated above, any charge for these services must be first approved by DIFS as stated under Rule 25(1).
- Can a licensee charge an NSF fee if a debtor's payment returns unpaid?
No. This fee is not specifically authorized in the Act.
- What duties must a licensee perform annually?
The licensee must complete the following on an annual basis as required under Section 16(2):
- Review procedures used by the licensee for processing checks and handling cash.
- Verify the payments to selected creditor accounts are properly disbursed.
- Verify consumer complaints are properly handled.
- Review selected client files and verify they contain proper documentation.
This review must be documented and include an explanation of the review process that took place, findings resulting from the review, and any applicable corrective actions. This documentation must be maintained by the licensee.
- How long must a licensee maintain records?
A licensee must maintain all records of the debt management business for a minimum of 6 years after each record is created as required under Section 16(1)(a). This includes, but is not limited to: budget analyses (the original and any updated versions), contracts, amended contracts, monthly/quarterly statements, payment histories, creditor consent information, counselor notes, ACH authorizations, trust reconcilements, financial statements, and a history of all general ledger account entries.
- What written procedures must a licensee maintain?
Rule 17(1) requires each licensee to prepare and maintain a manual detailing procedures to ensure compliance with the Act. These procedures should not only include the steps employees take to complete all aspects of day to day activities, but must also address specific areas the Michigan Act requires. These specific requirements include monitoring for 51% of creditor consent, completing the annual duties required by Section 16(1)(g), adding or removing creditors, and updating and maintaining budget analyses. This list is not all inclusive.
- When DIFS request a list of all Michigan clients, what is required to be submitted?
The licensee must be able to provide a listing of all clients who executed a contract while residing in the State of Michigan without regard to their current address. If a client moves out of Michigan, the client should still be included in the list of Michigan clients, unless a new contract was signed after the client moved out of Michigan.
- Which Rules are no longer in effect due to the amendments made to the Act?
- Rule 5(1)
- Rule 5(3)(a)-(c)
- Rule 6(2)(a)-(k)
- Rule 11(1) – (6)
- Rule 12
- Rule 17(2)-(4)
- Rule 19(1)
- Rule 20(1)-(2)
- Rule 24(1)-(3)
The answers provided are not meant to be a substitute for legal advice.