Earlier this year Tennessee enacted the Debt Resolution Services Act (the “Act” or “DRSA”), a new statutory framework that will govern traditional debt settlement services effective January 1, 2026. For years, debt settlement activity, including those providing services as regulated under the federal Telemarketing Sales Rule, fell under the state’s Uniform Debt Management Services Act (“UDMSA”), which was drafted with traditional debt management models in mind, rather than debt settlement. The new Act replaces the UDMSA as a new dedicated regulatory framework for traditional debt settlement service providers that do not hold or manage consumer funds in trust.
Licensing and Application Requirements
Under the DRSA, providers may not offer “debt resolution services” to Tennessee consumers without first obtaining a license from the Tennessee Department of Commerce and Insurance. The definition of “debt resolution services” includes any program represented to negotiate, settle, or otherwise alter the terms of unsecured debt.
The licensing framework incorporates several requirements familiar from the UDMSA. Applicants must submit financial statements for the preceding two fiscal years, a copy of their consumer agreement forms and fee schedules, and evidence of accreditation or certification by an approved independent accrediting body or national trade group. They must also file a surety bond of up to fifty thousand dollars and, if required by the commissioner, provide fingerprints for executive officers to support national criminal background checks. Licenses are issued for two years and are subject to renewal and ongoing recordkeeping, disclosure, and reporting obligations.
The Department of Commerce and Insurance has indicated to us that the license application is expected to be available through the state’s CORE online system on January 1, 2026, and that providers should not engage in activity requiring licensure until a license has been approved.
Exempt Entities
The Act contains several important exemptions. Attorneys licensed in Tennessee who provide debt resolution services within an attorney-client relationship are fully exempt, as are dedicated account service providers that perform only account administration functions. Banks, certified public accountants, certain nonprofit entities, creditors negotiating on their own behalf, and government officers are also excluded. In addition, employees of a licensee and individuals who only market on behalf of a licensed provider, without performing any debt resolution services themselves, are exempt from the Act’s licensing requirement.
Consumer Protections and Earned Fee Requirements
The DRSA establishes detailed consumer protection requirements, including mandatory disclosures in the service agreement addressing the nature of the services, the method of calculating fees, anticipated timelines, the effect of nonpayment on credit and collection activity, and potential tax implications. Agreements must identify each enrolled debt and must be provided promptly to consumers.
Providers may request or require the use of a dedicated account, but the account must meet requirements consistent with the Telemarketing Sales Rule. Funds must be held in an FDIC insured bank, owned by the consumer, and administered by an unaffiliated dedicated account provider. The consumer must be able to terminate services at any time without penalty.
The fee structure aligns closely with the federal earned fee model. No fee may be collected until at least one debt has been renegotiated or resolved and the consumer has made a payment under the resulting agreement. Fees must then be calculated either in proportion to the total enrolled debt or as a percentage of the savings achieved, applied consistently across all debts.
Enforcement and Transition
The Act includes a range of prohibited practices, such as misrepresentations regarding anticipated savings or timelines, sending creditor cease and desist communications, receiving consumer funds beyond earned fees, and operating or influencing consumer review platforms. Penalties may reach five thousand dollars per violation, subject to a maximum of one hundred thousand dollars. Existing agreements and licenses issued under the Uniform Debt Management Services Act may continue for non-debt resolution activity, but providers engaging only in debt resolution services will be required to transition into the new licensing regime.
Tennessee’s Debt Resolution Services Act creates a comprehensive and modern regulatory framework for traditional debt settlement services. Providers should prepare now for the January 1, 2026, effective date, monitor the release of the state’s license application, and ensure that all Tennessee facing activity complies with the new licensing and other Act requirements.