Surprisingly, many do charge upfront fees. Although the FTC has banned upfront fees for debt settlement services, its rule is specifically a consumer protection regulation, and it exempts telephone sales to businesses. However, state laws in North Carolina, Georgia and New York may limit them.
Is it illegal for a debt settlement company to charge upfront fees?
For consumer debt sold over the phone, it is illegal to charge upfront fees. The FTC's Telemarketing Sales Rule, 16 C.F.R. §310.4(a)(5), bars requesting or receiving "any fee or consideration" until at least one debt has been settled under an agreement you signed and you have made at least one payment under it. Each debt must also be charged separately, as a percentage of the enrolled debt or of the savings.
Firms often require you to save in an account, and according to the FTC's guide to the rule, the account administrator "may charge the customer a reasonable fee." So even in a program that follows the FTC's rule, a monthly fee may come out of your account, but it goes to the account administrator, not to the debt settlement company.
Why doesn't the FTC advance-fee ban cover business debt?
The FTC's Telemarketing Sales Rule specifically excludes telephone calls with "any business" from all of the rule's requirements except for the prohibition on misrepresentations, 16 C.F.R. §310.6(b)(7). The FTC's debt relief definition also covers only debts owed to "unsecured creditors or debt collectors," 16 C.F.R. §310.2. So, if your MCA funder or equipment funder filed a UCC-1, the FTC's Telemarketing Sales Rule arguably would not apply to that debt. In adopting the rule, the FTC said it was for "anything sold to consumers" and "a consumer debt." See 75 Fed. Reg. 48,466.
It is, however, illegal for debt settlement companies to lie to you. After amendments by the FTC in 2024, it is illegal to misrepresent your savings, how long they will take, the impact on collection efforts or the settlement success rate, or to make any false or misleading statement to induce you to pay. See 16 C.F.R. §310.3(a)(2)(x) and (a)(4).
Which states restrict business debt settlement upfront fees?
In our review of state laws, we found 3 states that have laws not specifically limited to consumer debt. We found none applied to MCA or other commercial debt.
| State | Who it covers | What it says about fees | Consequence |
|---|
| North Carolina (G.S. 14-423) | Individual who resides in the State. Not limited to debt incurred for consumer purposes. | Illegal debt adjusting for taking a fee prior to completing the settlement or rendering all agreed upon services. | Class 2 misdemeanor. |
| Georgia (O.C.G.A. 18-5-2) | Any "debtor," which is not limited in the chapter. | May not exceed 7.5% of the monthly amount the debtor pays to be distributed to creditors. Funds must be paid out to creditors within 30 days of receipt from a separate trust account. | Recovery of all fees paid plus $5,000; a misdemeanor and a violation of the Georgia Fair Business Practices Act. |
| New York (GBL 455 and 456) | Specific debtor whose funds are distributed or controlled. | May not engage in budget planning, unless an attorney or licensed nonprofit. | Engaging in prohibited activity. |
How does a program that holds your savings for months square with Georgia's requirement of paying funds out to creditors within 30 days? If you're in New York, ask any company that takes your weekly deposit, pays funders out of it and returns the remainder whether it has structured the arrangement to avoid New York's prohibition on budget planning. If it only negotiates and never touches the money, it's probably not a concern.
Don't rely on the laws in Connecticut (only applies to debt for "personal, family or household purposes"), California, Delaware or Utah because those statutes all apply to consumer debt.
What red flags should you look for in a fee agreement?
It may still be misleading under 310.3(a)(4) (which does apply to business calls) for a company to advertise no upfront fees and then charge a setup fee when it draws up the first contract. It's worth reviewing your escrow agreement against the consumer standards:
- Is the escrow agent an insured bank?
- Do you retain ownership of the funds?
- Is the escrow administrator independent of the settlement firm?
- Will you get your money back less earned fees within seven business days after you cancel?
Firm-controlled escrow was central to the May 2026 guilty plea by the operator of an MCA settlement company who diverted the funds in his clients' escrow accounts. Will the company take a fee before it settles the specific debt to which the fee applies? Will it charge you a penalty if you terminate early? Can it guarantee that collections won't continue after you enroll? These are all good benchmarks to review your agreement against.
For fee structures and total cost, see Comparing Percentage of Enrolled Debt to Percentage of Savings, How Much Do MCA Settlement Companies Charge and How Much Does Business Debt Settlement Cost.
Frequently Asked Questions
Is it an upfront fee if I have to make monthly payments into an escrow or custodial account?
No. The FTC permits the independent escrow or custodial account administrator to charge a reasonable fee but prohibits the debt settlement firm from charging one. This is how companies who advertise no upfront fees can charge fees every month before they settle your debts.
What if I have personally guaranteed the MCA or I'm a sole proprietor?
Some states' laws apply to any individual who resides in the state, such as North Carolina. That would appear to include sole proprietors and owners who sign in their own name. I'm not aware of any sources that discuss whether the FTC's exemption for business calls covers sole proprietors or owners who personally guarantee the debt.
Why can a law firm charge me a retainer but a debt settlement company can't?
Some states' debt adjusting laws, such as Georgia's, North Carolina's and New York's, have exceptions for the practice of law. The North Carolina exception is only for a licensed attorney who isn't employed by a debt adjuster, so it appears designed to stop settlement companies from hiring a lawyer just to charge upfront fees.
What if I've already paid a fee to enroll?
Check whether your agreement lets you cancel for a refund. If you're in Georgia, the statute says you can recover all of the fees you've paid plus $5,000 if they exceed the statutory maximum. If you were misled about whether they could charge upfront fees, you can always report the company to the FTC or to your state's attorney general, but I'm not sure that will get your fees back to you.