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In March 2011, North Dakota passed a law dealing with debt settlement. This is on top of North Dakota's 2009 passage of a version of the Uniform Debt Management Services Act. With the new law, the basics of debt settlement performed by companies remain intact. Consumers agree to stop paying their creditors, and instead make payments to the debt settlement company. The company keeps the money and negotiates lower payments or settlements with creditors. When the creditor agrees, money from the debtor's account is used to discharge the debt.
Debt settlement can be useful for accelerating debt pay off, but it comes with consequences. A debtor's credit score usually drops dramatically because payments stop and the debt is reported as settled in the credit file.
In North Dakota, though, debt settlement companies are limited how much they can charge in fees. The 2011 law prohibits debt settlement companies from charging enrollment, setup, maintenance and upfront fees. Additionally, settlement service fees are capped at 30 percent of the consumer's savings.
Debt settlement companies also have to apply for a license with North Dakota's Department of Financial Institutions. Companies that aren't in compliance can be charged with a felony.
It's true that debt settlement can be helpful for many consumers. It's one way to get debt under control, and pay off obligations in two to five years, rather than struggling along for longer. However, it's important to read through the contract ahead of time. Everything is required to be clear in the contract by North Dakota law, so make sure to read the entire agreement before signing.
In North Dakota, a credit counseling agency is defined as an organization (nonprofit) that engages in "debt adjusting." This means that credit counseling in North Dakota is about providing you with services that help you pay off your debt by negotiating with creditors on your behalf.
Credit counselors might ask your creditors to lower your interest rate, or to allow you to make a lump sum payment that is less than what you owe in total. Credit counselors can also help you work out a financial plan that allows you to pay down your debt.
In exchange for these services, credit counseling agencies collect fees from you. It's important to note that there are a number of credit counseling organizations out there; it's best to choose from a list of approved credit counselors, and the U.S. Department of Justice offers a good place to start.
ND Credit Counseling Requirements
Because North Dakota has passed a version of the Uniform Debt Management Services Act, it's important to understand your rights. Here are some of the requirements of credit counseling in North Dakota:
- Both parties must sign a detailed service agreement that includes information about fees to be paid and services performed by the credit counseling organization.
- Any credit counselor wishing to enter into an agreement with a North Dakota resident must have a surety bond filed with the Attorney General's office.
- Debtor payments to the credit counseling agency must be considered a trust account. Credit counselors have one business day to deposit the payment in an appropriate trust account.
- The origination fee for credit counselors in North Dakota can be no more than $50. Other service fees can be withdrawn, up to 15 percent of any sum deposited by the debtor for distribution.
- Credit counselors need to keep books in compliance with the Office of the Attorney General for proper enforcement.
Before signing a credit counseling agreement, it makes sense to double-check to make sure that the organization is in compliance with North Dakota state law.