Debt Adjusters.

Debt adjusters contract with consumers to manage their debts by negotiating with creditors to potentially reduce an amount owed or to restructure the terms of a debt, offering counseling or money management services, and essentially being an intermediary between the person and the creditor.? State law defines "debt adjusting" as the managing, counseling, settling, adjusting, prorating, or liquidating of the indebtedness of a debtor, or receiving funds for the purpose of distributing said funds among creditors in payment or partial payment of the obligations of a debtor.

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State law regulates debt adjusters by limiting the fee charged for services to no more than 15 percent of the total debt contracted for, establishing contract disclosure requirements, specifying required functions that a debt adjuster must perform, and establishing prohibited acts.? Debt adjusters are required to hold funds in a trust account for their clients that the debt adjuster uses to make disbursements to creditors.? The Attorney General is responsible for the enforcement of debt adjusters.? The Attorney General may investigate the debt adjuster's books, accounts, records, and files at any time for the purpose of discovering violations.? Violations are considered unfair or deceptive practices for purposes of applying the Consumer Protection Act, and any person who is found in violation is guilty of a misdemeanor.? In addition, the Attorney General or a county prosecuting attorney may bring action in the name of the state against a debt adjuster for an injunction.??

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Federal Trade Commission Rules.?

In 2010 the Federal Trade Commission (FTC) updated the Telemarketing Sales Rule (Rule) with provisions specific to debt relief services.? The Rule applies to for-profit sellers of debt relief services and telemarketers for debt relief companies who make interstate telephone calls to induce the purchase of goods or services.? Debt relief service is defined as "any program or service represented, directly or by implication, to renegotiate, settle, or in any way alter the terms of payment or other terms of the debt between a person and one or more unsecured creditors or debt collectors, including, but not limited to, a reduction in the balance, interest rate, or fees owed by a person to an unsecured creditor or debt collector."?

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Under the Rule, debt relief services providers are prohibited from charging a fee before the provider settles or reduces a consumer's debt and from misrepresenting the services provided.? Debt relief services providers must also disclose certain information before signing consumers up for services.? Also modified is the way that debt relief services providers may manage a consumer's funds.? While debt relief services providers may request or require a consumer to place funds in an account to be used for payments to creditors in connection with renegotiation, settlement, reduction, or other alteration of the terms of payment or debt, the rule requires that:

• funds be held in an account at an insured financial institution;
• the consumer owns the funds held in the account and is paid interest, if any;
• the entity administering the account is not owned or controlled by, or in any way affiliated with the debt relief service;
• the entity administering the account does not give or accept any money or compensation in exchange for referrals; and
• the consumer may withdraw from the debt relief service at any time without penalty and receive all funds in the account, other than fees earned by the debt relief service.

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State laws regulating debt adjusters are modified to include debt resolution services providers (providers), and the authority to regulate debt adjusters is transferred to the Department of Financial Institutions (DFI).? Existing statutory penalties for violations for debt adjusters are applied to providers.? The definition of "debt adjusting" is amended to no longer include the practice of settling debts.? "Debt resolution services" is defined as "any program or service represented, directly or by implication, to renegotiate, settle, or in any way alter the terms of payment or other terms of the debt between a consumer and one or more unsecured creditors including, but not limited to, a reduction in the balance, interest rate, or fees owed by a consumer to an unsecured creditor."?

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Licensing Requirement.

Debt adjusters and providers are required to be licensed by the DFI beginning July 1, 2026.? Applicants need to submit an application for the primary business address, obtain a surety bond, and pay a license and investigation fee.? Applicants needs to submit certain information, including a copy of their consumer contract, schedule of fees and charges, and income and balance sheets.? A license is valid for two years.

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Exemptions.

There are a variety of persons exempt from the licensing and regulations requirements established for debt adjusters and providers.? Exemptions for debt adjusters remain as specified in current law.? Entities not considered providers include nonprofit organizations, public officers acting in official capacities, persons acting under court order, banks, licensed attorneys who provide debt resolution services within an attorney-client relationship, creditors and their employees who negotiate debt resolution services with their consumers or with licensees acting on behalf of consumers, assignees for the benefit of creditors, certified public accountants who provide debt resolution services within an accountant-client relationship, dedicated account services providers that do not otherwise provide debt resolution services, and persons who provide debt resolution services to an individual who the person has no reason to know resides in Washington at the time the person agrees to provide services.?

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The Department of Financial Institution's Duties.

The DFI must administer the application process, including obtaining fingerprints for applicants and their executive officers and conducting criminal background checks.? The DFI may participate in a multistate licensing system for the application and licensing process.? The DFI has authority to deny, suspend, or revoke licenses for specified reasons and has investigative authority to review?books, accounts, records, and files of licensees.? The DFI may bring action, through the Attorney General, to restrain and prevent any violations, to accept an assurance of discontinuance of any act or practice deemed in violation, and may recover civil penalties.?

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Debt Resolution Services Providers.

Contract Requirements for Debt Resolution Services Providers.

Every contract between a provider and a consumer must disclose:

• the services to be performed;
• the methodology the provider will use to calculate fees, and if known, the fees the provider will charge;
• a good-faith estimate of the amount of time necessary to achieve debt resolution;
• the amount of money or percentage of each outstanding debt that the consumer must accumulate before the provider will make a resolution offer to creditors;
• that debt resolution services may not be suitable for all individuals;
• to the extent that any aspect of the debt resolution service relies upon or results in a consumer's failure to make timely payments to creditors, that the failure to pay may adversely affect the consumer creditworthiness, subject the consumer to collection efforts, and may increase the amount owed due to fees and interest accrual;
• that resolving a debt for less than its full amount may result in the creation of taxable income;
• that specific results cannot be predicted or guaranteed;
• that debt resolution service programs require individuals to meet regular savings goals to enable debt resolution;
• that the provider does not provide tax, accounting, or legal advice to consumers;
• that the provider is the consumer's advocate and does not receive compensation from creditors for providing debt resolution services;
• that the provider does not make monthly or other payments to the consumer's creditors;
• the list of debts the contract covers; and
• that the consumer's rights are subject to mandatory arbitration of any and all disputes with the provider.?

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Dedicated Account.

Providers?may request or require a consumer to establish and place funds into a dedicated account administered by a dedicated account service provider.? The requirements for the account align with the FTC's requirements under the Rule.?

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Debt Resolution Services Fees.?

A provider may not charge a fee for services until:? (1) the provider and consumer have signed a contract; and (2) the provider has renegotiated, resolved, reduced, or otherwise altered the terms of at least one debt and the consumer has made at least one payment pursuant to a resolution contract between the consumer and a creditor.?

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The fee must either:

• bear the same proportional relationship to the total fee for renegotiating, resolving, reducing, or altering the terms of the entire debt balance as the individual debt amount bears to the entire debt amount; or
• be a percentage of the amount saved as a result of the renegotiation, resolution, reduction, or alteration.?

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Accounting Statements.?

A provider must distribute an accounting statement to a consumer:? (1) at least once per month and within five business days after a consumer requests a statement while a debt resolution service contract is in effect; and (2) within five business days from the date on which a contract is terminated.? The statement must contain specified information.? If a provider enables electronic access to a consumer's deposit account transaction information and activity, the electronic access satisfies this requirement.?

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Prohibited Practices for Debt Resolution Services Providers.?

Providers, persons marketing on behalf of providers, and their employees may not:

• take or exercise a power of attorney that authorizes the provider to resolve a debt;
• send creditors cease and desist notices or require consumers to notify creditors of changes of addresses or phone numbers meant to divert communications from the consumer to the provider;
• exercise any authority of the consumer after a consumer has canceled a contract;
• initiate, or request that a dedicated account service provider initiate, a transfer from the consumer's account unless the transfer is for a return of funds, properly authorized, or at the consumer's express direction for a negotiated resolution with a creditor;
• resolve a debt or lead a consumer to believe that a payment is in resolution of a debt unless the creditor confirms;
• make any representation that the provider will furnish money to pay bills or prevent attachments or that participation in a debt resolution services program will prevent litigation, garnishment, attachment, repossession, foreclosure, eviction, or loss of employment;
• misrepresent that the provider is able to furnish legal advice or services;
• misrepresent any material aspect of a debt resolution services program;
• take a confession of judgment or power of attorney to confess judgment against a consumer;
• purchase a consumer's debt or obligation or obtain a mortgage or other security interest from any person in connection with the services provided to the consumer;
• receive from or on behalf of the consumer a promissory note or other negotiable instrument other than a check or demand draft; or
• disclose a consumer's identity, identifying information, or the identity of the consumer's creditors.

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Contract Cancelation and Termination for Debt Resolution Services.?

A consumer may terminate a contract for debt resolution services at any time without incurring a penalty.? Upon receipt of a consumer's cancellation notice, the provider must advise the consumer of the effect, if any, within two business days, that termination would have on previously negotiated installment resolution contracts and pending resolution notifications.? Within five business days, the provider must notify the dedicated account services provider of the cancellation.? If a consumer fails to honor their contractual obligations on or before the sixtieth day after the consumer was required to perform them, the provider may terminate the contract.? If a consumer refuses to pay a fee after payment has been earned by the provider, then the provider may terminate the contract immediately.?

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Debt Adjusters and Debt Resolution Services Providers.?

Recordkeeping.

Within 90 days of completing or terminating a debt adjusting or debt resolution services program, a consumer may request that a licensee send them a copy of all materials required to be provided to the consumer.? The licensee must send the materials within five business days at no charge.? If the request is made later than 90 days after the program is complete or terminated, but within two years, the licensee must send the materials within a reasonable timeframe.? The licensee is not required to comply with any request after two years.? Licensees are required to keep a copy of each signed contract with any consumer for not less than five years from the date the program is completed or terminated.? ?

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Prohibited Advertising Practices.?

Licensees are prohibited from engaging in advertising statements or representations that are deceptive, false, or misleading.? Licensees may not provide anything of value in exchange for favorable reviews or ranking placements.? Licensees and affiliates may not own or operate websites or other public-facing resources presenting rankings or consumer reviews of the licensee.? Licensees may not mislead consumers regarding whether reviews accurately reflect all reviews consumers have submitted.?

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Annual Reports.?

Debt adjusters and providers must file annual reports with the DFI that include their total number of consumers, total number of enrolled consumers, and total fees collected.?