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Debt Settlement

The Attorney General cautions consumers to carefully choose a debt settlement company after several large scams were shut down in the state. In Iowa, credit service organizations are regulated in Iowa by the Chapter 538A Credit Services Organizations statute. The state defines a credit services organization as “a person who, with respect to the extension of credit by others and in return for the payment of money or other valuable consideration, provides, or represents that the person can or will improve a buyer's credit record, history or rating.” All credit services organizations, other than those with exemptions -- such as banks, lawyers and credit unions -- are required to register with the Iowa Secretary of State. Consumers should select an agency from the list maintained by the Secretary of State. Note that after signing a contract for debt settlement in Iowa, you can cancel the contract for three days after signing without penalty.

Questions You Should Ask

Asking the right questions is one of the most important things you can do. For starters, ask the following:

  • How much are the fees
  • When are the fees due?
  • Are there monthly fees or charges?
  • Can I get that in writing?

Remember: Iowa law does not regulate these fees – however most companies charge between 13 to 20 percent of customer debt or around 35 percent of the total amount settled.

You should also ask detailed questions on the fees including if the fees are due in advance, on a monthly basis or after the settlement. Iowa law does not regulate the amount of fees charged for debt settlement by credit services organizations. According to the NFCC, if a company’s fees are a percentage of your debt, then most companies charge 13 percent to 20 percent. Other companies base their fee on the amount of debt settled, typically around 35 percent. Be sure to also ask about any monthly fees.

Credit Counseling

In Iowa, credit service organizations are regulated in Iowa by the Chapter 538A Credit Services Organizations statute. Several types of credit service organizations are exempt from the law, including lawyers, banks, credit unions and nonprofits. All other credit service organizations are required to obtain a surety bond and be registered with the Iowa Secretary of State. Iowa residents have been the victim of numerous credit services scams in recent years, and it is important to carefully select a reputable agency.

Steps For Successful Credit Counseling

Contact A Credit Counseling Agency 

The Iowa Secretary of State maintains a list of active credit counseling organizations in the state. The National Foundation for Credit Counseling maintains a list of member organizations in Iowa that meet specific standards. If you find an agency that is not reputable, you can report the credit counseling company to the Office of the Iowa Attorney General using an online complaint form.

Ask About Fees For Credit Counseling

“Any set-up fee or monthly fee should be reasonable, usually defined as $50 or less, with monthly fees in the $25 range. The agency should be willing to waive all fees in cases of true hardship,” says the NFCC website. Iowa law prohibits credit counselors from taking money before the service is performed and gives consumers the right to cancel any credit services organization contract within three days of signing. However, Iowa state law does not regulate the maximum fees credit counselors can charge for their services.

“For-profit debt relief companies may claim that there are simple solutions for everyone, and often charge pricey advance and hidden fees that don’t go toward reducing your debt. Those fees can include initial fees, monthly service fees and a closing fee. Some firms may do little or nothing but collect fees. (For-profit debt relief companies that sell their services over the telephone may no longer charge a fee before they settle or reduce a consumer’s credit card or other unsecured debt, but this federal rule does not apply to debt relief agreements made through the Internet or in-person),” according to the Iowa Office of the Attorney General.

Meet With Your Credit Counselor

Providing accurate information about your financial situation is a must if you want to be successful. Your counselor may provide advice or recommend a financial management course. Another option is a debt management plan, which involves the agency negotiating with your lenders. You would then make a monthly payment to the agency, which pays your creditors directly.

Follow Your Credit Counselor’s Advice

Work to make lasting changes in your financial situation and keep documentation of all credit counseling services and paperwork in case you need the information in the future.