The Uniform Debt Management Services Act was introduced in July 2005, by the National Conference of Commissioners on Uniform State Laws (NCCUSL). It was enacted as the first nationalized attempt to collaborate and regulate debt relief services.
Consumer debt relief services have been available to consumers since the 1950s. There were two broad kinds of services available to the debtors. They promised to relieve debt-stricken consumers of their huge debt loads easily. Some provided credit counseling and helped debtors by setting up programs to reduce interest and pay off their debts over an extended period of time. Other services included debt settlement services, where agreements were made with creditors to reduce the outstanding debt amount. In both cases, the consumer had to pay a certain amount to the service provider in exchange for the services they offered.
These services offered relief to consumers with huge debts. But, they were often criticized for dissuading debtors from filing bankruptcy, which was a less costly and more regulated method of debt relief and they were viewed as money extractors. Debates also arose over ethical issues such as whether for-profit debt relief services should be allowed to operate or not.
The legislators looked for effective means to tackle these controversies and regulate the unorganized debt relief industry. The federal bankruptcy reform of 2005 marked a great turning point for these debt relief services. According the reform, consumers filing for Chapter 7 bankruptcy needed to show that they had attempted credit counseling and debt management.
The new bankruptcy law thus increased the incentives for debt relief services to act responsibly and effectively. In the same year, the National Conference of Commissioners on Uniform State Laws (NCCUSL) issued the UDMSA to govern and homogenize all the debt counseling and debt settlement services in different states.
The Uniform Debt Management Services Act is a comprehensive act that nationally regulates consumer credit counseling and debt settlement services. It is meant to provide rules for registration requirements, bond requirements, certification requirements, disclosure requirements, and penalties for non-compliance.
The UDMSA is divided into 3 sections:
Every debt relief service provider in a state must register as a consumer debt-management service in that state. To register, the service provider will be required to:
If a registration is similar to one in another state, the service provider may produce the proof of registration belonging to the other state to satisfy the registration requirements in that state. On satisfactory application, the service provider will receive a registration certificate from the administrator and will be allowed to pursue their business.
Registration needs to be renewed every year.
The Act requires a service provider to:
The contents of the agreements and fees charged must be in compliance with this statute.
A debtor will not be penalized if they cancel the agreement within 3 days of signing. The debtor may also cancel it after 30 days, but they will be subject to penalties.
The service also holds the right to terminate the agreement if required payments are not made for at least 60 days.
There are strict accounting requirements and periodic reporting requirements respecting funds held in the trust account.
The Act prohibits specific conduct by a service provider. The following are some of the limitations enforced by the UDMSA:
Enforcement of the Uniform Act occurs at the administrative and individual level. The administrator is endowed with:
The Act also gives the right to sue to the individual. An individual may file a civil lawsuit to get their damages compensated, including triple damage compensation if a service obtains payments that are not authorized in the Uniform Act. The individual may also claim compensation for disciplinary damages and attorney's fees.
While the statute of limitations concerning an action by the administrator is four years, the statute of limitation for a private suit is two years.
While banks are regulated under other law, they are not subject to the UDMSA, as other activities that are incidental to other functions performed. For example, a title insurer offering bill-paying service incidental to title insurance is not subject to the UDMSA.