Debt Resolution Services Must Now Obtain State License

Individuals and companies offering debt resolution services must now obtain a state license in certain states, most notably under Tennessee’s new Debt Resolution Services Act and California’s recent regime for debt settlement services. These changes are part of a broader trend toward tighter state-level regulation of debt relief and settlement providers.​

Tennessee’s new licensing rule

• Starting January 1, 2026, any person offering debt resolution services to Tennessee consumers must first obtain a license from the Tennessee Department of Commerce & Insurance (TDCI) before providing those services.​

• “Debt resolution services” in Tennessee covers programs that negotiate, settle, or otherwise alter the terms of unsecured consumer debt, meaning traditional debt settlement models fall squarely within the law.​

Application and compliance requirements (Tennessee)

• Applicants must submit financial statements for the previous two fiscal years, copies of consumer agreements and fee schedules, and proof of accreditation or certification from an approved independent body or national trade group.​

• Providers must also post a surety bond of up to 50,000 dollars and may be required to submit executive officers’ fingerprints for national criminal background checks; licenses last two years and carry ongoing recordkeeping, disclosure, and reporting duties.​

Prohibited practices and penalties (Tennessee)

• Tennessee’s Act bans practices such as misrepresenting expected savings or timelines, sending creditor “cease and desist” communications, taking consumer funds beyond earned fees, or manipulating consumer review platforms.​

• Violations can trigger civil penalties up to 5,000 dollars per violation, capped at 100,000 dollars, creating significant enforcement risk for unlicensed or non-compliant providers.​

California and other state trends

• In California, effective February 15, 2025, no one may provide or offer debt settlement services to California residents without first registering with the Department of Financial Protection and Innovation, using the nationwide NMLS system.​

• California also previously moved to license all debt collectors under its Debt Collection Licensing Act, aligning with a growing number of states that require licensing and examination of collection and settlement activities.​

What this means for providers and consumers

• Providers operating nationally need to review each state’s rules, because many states either already require, or are moving toward requiring, a license or registration for debt resolution, settlement, or collection services.​

• Consumers in states like Tennessee and California can now check whether a debt resolution or settlement firm is properly licensed or registered and may have clearer avenues for complaints and regulatory enforcement if abuses occur.​