Each of these businesses differs in the services they provide. To help you determine which category your company fits into, here are definitions of each:
- Credit services organization (CSO): Credit services organizations improve the credit situations for individuals for a fee.
- Debt management: Debt management companies help people pay off their debts by consolidating debts into a single monthly payment, which is then shared amongst their creditors. There may be some overlap with credit services organizations.
- Debt settlement: Debt settlement is also called debt reduction, debt negotiation, or debt resolution. Settlements are negotiated with the debtor's unsecured creditors. There may be some overlap with credit services organizations.
Before your debt services company can begin to operate in a state, research the licensing requirements specific to that jurisdiction. Although requirements vary by state, generally you will need to provide the licensing authority with the following:
- Business plan
- Financial review and credit check
- Formation documents
- Certificate of Good Standing
- Corporate structure chart
- Background check
- Surety bond
Every applicant is different, and all regulatory agencies reserve the right to request additional information from the business entity. Furthermore, individual counselors are often required to be licensed as well as the business itself.
If the state in which you operate has no debt services licensing requirement, check that there aren’t other compliance tasks, such as obtaining a surety bond.
Typically, obtaining a debt management services license can take between three to four months.
If you do business in a state but your company is domiciled in another state, you are treated as an out-of-state entity and will likely need to be foreign qualified by registering your business with the Secretary of State. This process may require you to provide proof that you are licensed in your home state as a debt management company or that your home state doesn’t require a license.
Note: The states of Hawaii, North Carolina, and Louisiana allow credit service organizations but prohibit certain “debt adjustment” activities (encompassing debt management and debt adjustment) altogether.