Why Won't Debt Settlement Companies Let Me Cancel?

You called to cancel. The rep ran through reasons it was a bad idea. They asked the same question three different ways. They warned you about what would happen if you left. You hung up feeling like you couldn't get out.

You can leave even if a rep pushes back. Here's what you should know about your right to cancel, and what it costs you.

Your right to cancel a debt settlement program

You can cancel your debt settlement program. The Federal Trade Commission's Telemarketing Sales Rule covers debt relief companies that help you set up a dedicated savings account. Under the rule, you can withdraw from the service at any time, without penalty. 

If you end the relationship with your settlement company, the bank or credit union managing your account has to return what's in that account within seven business days. The only deductions are fees the company legitimately earned on debts it already settled, and any fees you agreed to pay to maintain the account.

The money in that account is yours. It was yours from the start. A rep pushing back on a phone call does not change the rule. State laws vary, and some states offer additional protections beyond the federal rule.

What canceling debt settlement costs you

Most debt settlement programs ask you to pause payments to your creditors. When you cancel, you’ll be responsible for fielding contact from your creditors on the debts that didn't get settled. That includes calls, letters, and the possibility of a lawsuit. Creditors could file a lawsuit during or after enrollment, and canceling does not change that risk.

Late fees, penalty interest, and other charges may have piled up on debts that didn't get settled. The Consumer Finance Protection Bureau warns those built-up fees may wipe out the savings on the debts that did settle. Check the fees section of your agreement.

Any debt the company already negotiated and that you paid stays resolved.

Some agreements may include additional cancellation terms, penalties, or fees that fall outside the federal dedicated-account return rule. Your specific contract governs these terms. Read your enrollment agreement, or ask your debt settlement company to walk you through it.

None of this is a reason to stay if leaving is the right move.

Bills Action Plan

Step 1. Put your cancellation request in writing. Email or mail it to your debt settlement company, and keep a dated copy.

Step 2. Read your enrollment agreement. Look at the cancellation section and the fees section. Ask your debt settlement company to clarify anything that isn't clear.

Step 3. Talk through the consequences before you finalize. Your debt settlement company can walk you through them, or a financial advisor can give you a second opinion. If your written request gets refused, file a complaint at consumerfinance.gov/complaint or with your state attorney general.

Key Terms

Dedicated savings account. An account at an insured financial institution (typically a bank or credit union). Your monthly deposits sit there while the debt settlement company negotiates with creditors. You own the funds. Debt settlement fees come out only after the company actually settles a debt, you agree to the terms of the settlement, and at least one payment is made pursuant to the agreement. 

Telemarketing Sales Rule (TSR). The federal rule that governs most professional debt relief companies, enforced by the FTC. It sets the cancellation right, the seven-business-day return, and the no-fees-before-settlement rule.

This article is for general education. It is not legal or financial advice. Consult a licensed attorney or financial advisor for guidance specific to your situation.