Debt Management FAQ
- When do we need to renew our Debt Management License?
Your license expires on December 31 of each year and must be renewed on or before December 1. You will receive a renewal application from our office with instructions on how to renew. Failure to renew in a timely manner will prevent you from conducting debt management activity in Michigan.
- We no longer want/need our Debt Management license, what do we do?
If you go out of business or elect not to renew the license, you are required to submit to our office a surrender letter along with your original license certificate.p>
- How do we report a change of address?
A person or company must request an amendment to the license if it changes its physical location.
Submit the following to our office:
- Original license certificate
- Written notification of the new address
- Amended surety bond rider, if applicable
- What happens if we have a name change?
A person or company may not use a name other than the name reflected in the license. If a licensee intends to transact business with a name other than on the license, it must first obtain an amended license with that name. This includes the company name as well as any changes to the assumed name.
Submit the following documents to our office:
- Original license certificate
- Written notice of the new name
- Amended surety bond rider, if applicable
- Who do we contact for licensing issues?
If you have any questions regarding the above items, please contact the Consumer Finance Licensing Unit at 877-999-6442.
- Who do we contact for compliance issues?
For information concerning compliance issues, e.g. maximum fees, record retention, and other compliance information, you should contact the Consumer Finance Examination Unit at 877-999-6442.
- How can I locate licensed Debt Management Entities/Locations?
You can view licensed entities and entity locations by visiting “Regulated Consumer Finance Entities” on the DIFS website.
- What happens if my license is renewed after December 31?
If a license renewal is not received on or before December 31, the licensee is subject to a late penalty of $25/day for each day the fee is delinquent, or $1000, whichever is less.
- What are the Annual Report requirements?
An annual report is required to be filed - usually around February 15 of each year. You will receive annual report information directly from DIFS.
- Are licensees required to file Financial Statements with DIFS?
No. Beginning in 2018, financial statements will be collected at the time of renewal.
- Are we required to notify DIFS when a counselor is hired during the year?
No. DIFS does not require a licensee to notify our office when a new counselor is hired.
- Are we required to notify DIFS when a counselor departs our company during the year?
No. DIFS does not require a licensee to notify our office of a counselor departure.
- 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 prior to adding or removing a creditor from a debt management plan. A copy must be maintained of each completed budget analysis for six years after the date created.
- Is the certified counselor required to sign the budget analysis?
- The certified counselor is required to sign and date each budget analysis. An electronic signature is allowable. If an electronic signature is utilized, the time/date stamp and IP address must be captured.
- Can someone other than a certified counselor provide debt management counseling services?
As of December 1, 2015, any employee or agent of a licensee who engages in financial counseling and debt counseling functions must be an individual who is certified by a training program or certifying organization, approved by the director. The list of approved certifying organizations is found on the DIFS website. An individual being trained as a counselor and prior to receiving certification, may participate in the counseling functions but this activity must be done in conjunction with a certified counselor. All budget analyses must be signed by a certified counselor.
- 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.
- 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 this amount.
- The budget analysis must include the type and amount of all the debtor's obligations to be included in the plan and not included the plan. What is meant by "type"? How specific does the description of each of the debtor's obligations 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. The obligations to be paid directly by the debtor must be clearly identified as debt obligations not included in the plan. The type and amount of these debts must be listed. A monthly payment amount for individual debt items included in the current list of monthly expenses is not sufficient for compliance with this requirement.
- 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 "notice" to the debtor?
The notice 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 for six years from the creation date. A written reply from the debtor stating they want to keep the account open is not required. Yes, a telephone call is considered acceptable notice, if the call is recorded and maintained to comply with the record retention requirement.
- 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.
- The termination date must be disclosed in the contract. Can an "estimated completion date" be used instead of a specific termination date?
No. A specific termination date, using this term, must be disclosed. This is calculated based on the initial debts included in the debt management plan, the estimated balances and estimated interest charges for each individual debt. However, if debts remain at the time of the termination date, the contract may be extended.
- 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. The definition of “fair share program” must be included.
- What must a debtor provide 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 debt management plan. The written request may be in electronic form.
- What must the licensee do to add or remove a creditor?
The certified counselor 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. This is required for both adding and removing a creditor. A copy must be maintained of each completed budget analysis for six years after the date created.
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. A copy must be maintained of each completed contract for six years.
- What is the rescission period available to the debtor for cancellation?
A debtor is entitled to cancel the contract until 12:00 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 (setup) fee, cancellation fee, and the cancellation provisions be disclosed in the Debt Management Plan (DMP) Contract?
The DMP contract shall include the initial (setup), cancellation fee provisions and amounts in bold type as required by Rule 20(1). 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. The extension must be in writing, signed by both the licensee and the debtor, and must restate the contract terms required under Section 14(1) of the Act.
- Is a licensee required to submit revised copies to DIFS when its DMP Contract is amended?
No. The licensee is only required to submit copies of the DMP Contract at the time of application. Revisions are not required to be submitted to DIFS.
- When must the monthly Trust Account Reconciliation be completed?
The trust account(s) shall be reconciled at least monthly and no later than 45 business days after receipt of the bank statement.
- What is required to be included in the monthly Trust Account Reconciliation?
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 reconciliation must contain the balance in each debtor's account, the balance from the bank statement, the check number and amount of each outstanding check, the date and amount of deposits not yet credited by the bank, the reconciled bank balance, the balance from the checkbook, and a detailed breakdown of any differences. The reconcilement may be completed electronically.
- 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 all amounts received from the client that have yet to be disbursed to creditors and adding any outstanding checks (written to creditors which have not cleared the bank) and 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 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 October 1 of the previous year and divide this total by 12. This amount will represent the average balance in the account.
- 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. 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 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 debtor does not make a payment during the month, a monthly statement is still required to be provided. 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 90-day statements.
- If a debtor can access an online portal to review activity, can this be used to comply with the monthly statement and 90-day statement requirements?
The debtor can be provided the monthly and 90-day statements by having them access their account through a portal if they have agreed to receive documents electronically, however, the account activity must include the information in the format required. The debtor must be able to obtain all historical information for 6 years from the creation date. The account activity must include at a minimum, the month-end escrow balance and the cumulative totals as required for the 90-day statement.
- What signage must a licensee post at the office, branch office, or on a website?
The licensee must 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 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.
- What is the amount of fees that can be charged under the Act?
A licensee may charge an initial fee of $50.00. 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. The contract includes the total amount of the principal amount and approximate interest charges of the obligations to be paid under the debt management plan. These charges are an estimate based upon the initial debts included in the debt management plan, their estimated balances and estimated interest charges for each individual debt. The contract discloses the total amount of fees that may be charged by the licensee if the debt is fully liquidated during the term of the contract. However, if a debt is not liquidated, the fee allowed to be charged under the debt management plan cannot be collected. Therefore, management must review the client’s account to ensure fees do not exceed 15% of the debt actually liquidated when a debt management plan is completed, cancelled, or terminated. Fees collected by a licensee under Section 18(1) of the Act on a debt that is not liquidated in excess of the allowable 15% would need to be reimbursed to the debtor.
- Can a licensee charge a debtor a fee to purchase credit reports or educational materials?
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.
- Can a licensee charge fees for processing a debtor's payment?
No. These fees are not specifically authorized in the Act. Credit card processing fees and ACH processing fees cannot be charged.
- What duties must a licensee perform annually?
The licensee must complete the following on an annual basis:
- 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 for 6 years from the creation date.
- How long must a licensee maintain records?
A licensee must maintain all records of the debt management business for a minimum of six years after each record is created. 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 (including recordings of verbal 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 all procedures to ensure compliance with the Act. These procedures should include the steps employees take to complete all aspects of day to day activities and must also address specific areas the Act addresses. 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 requests 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.
- How often must a licensee post to the general ledger?
The licensee must post at least monthly.
- If a licensee accepts payments by ACH, what authorizations must be obtained?
The licensee must ensure compliance with the Article 2, Subsection 2.3 of the National Automated Clearing House Association Operating Rules.
The answers provided are not meant to be a substitute for legal advice.