In these uncertain times, relief through debt settlement is an essential service. Unfortunately, the General Assembly of North Carolina is reviewing a bill that could make it illegal and remove a vital debt relief option during a time of increased need.
Banning debt settlement in North Carolina would have a domino effect that could push vulnerable citizens into bankruptcy, eliminate jobs and take millions of dollars out of local economies.
North Carolina House Bill 76 Explained
House Bill 76 aims to ban debt settlement providers from doing business in North Carolina and nullify existing settlement agreements for thousands of North Carolina residents enrolled in the program. If successful, the new law would be the first of its kind.
Consumer protection is rightly a top priority for North Carolina lawmakers who believe banning the service outright would protect consumers from bad actors in the industry. Unfortunately, the bill is misguided and overlooks critical facts about how the debt settlement industry is regulated.
No Need to Overregulate Debt Settlement
Extreme measures like banning debt settlement in North Carolina are unnecessary because there are already strong safeguards and consumer protections in place within the industry. In reality, existing federal regulations and advocacy groups set high standards for doing business that protect consumers.
Watchdogs of the Debt Settlement Industry
The industry is federally regulated under the watchful eye of the Federal Trade Commission (FTC). Likewise, the American Fair Credit Council (AFCC) is an alliance that creates standards and guidelines to improve compliance, transparency and consumer advocacy within the industry.
Together, these organizations help prevent disreputable companies from manipulating consumers and provide accredited members with important updates and information.
For example, did you know that debt settlement companies are required to clearly explain how program fees are applied and are not permitted to accept payment upfront? This has been a point of confusion for policymakers.
Full membership and accreditation by the AFCC signals to consumers that a debt settlement company is diligently adhering to FTC rules and a strict code of conduct for members. Only reputable companies can be accredited by the AFCC. The FTC takes complaints against deb settlement companies seriously.
AFCC Code of Conduct Highlights
- No Upfront fees
- Fee Transparency
- Fair and Reasonable Fees
- Good Faith Communication
- Upfront Disclosure of Program Risks and Benefits
- Zero Compensation from Creditors
- No Exaggerated Claims
- Program Cost and Duration Estimates Based on Real Data
The Telemarketing Sales Rule
In 2010 the FTC amended the Telemarketing Sales Rule (TSR) to add specific provisions that curb deceptive and abusive practices associated with debt settlement. Debt relief companies that use telemarketing to contact potential customers have always been covered by the TSR.
These revisions included:
- It’s illegal to charge upfront fees
- You have to disclose certain information before signing people up
- You can’t misrepresent your services
In order to collect fees from a customer, debt settlement companies must meet the following criteria:
- A successful settlement has been reached
- There is an agreement between the customer, creditor and debt settlement company
- At least one payment to the creditor has been made under the settlement agreement
These vigorous measures should alleviate concern that predatory behavior is rampant among debt settlement companies. It isn’t, and removing the option would do more harm than good.
The Debt Settlement Industry Offers Significant Contributions to the Economy
In addition to being one of the most consumer-focused financial services available, the benefits of debt settlement positively impact the economy.
When people move beyond crippling debt, they can spend more of their hard-earned money in the local economy, supporting small businesses and investing in their communities. For example, debt settlement helped North Carolinians save $71 million in 2018. It also supported 324 jobs which led to a total economic impact of over $74 million, according to a 2020 National Economic Impact Study of the Debt Settlement Industry.
Source: 2020 National Economic Impact Study of the Debt Settlement Industry
These numbers are significant but pale in comparison to the total economic impact across the United States. In 2018 debt settlement generated $6.8 billion in economic impact and supported 34,000 jobs.
Debt Settlement Helps People Who Are Struggling With Debt Avoid Bankruptcy
There are currently 25,000 North Carolinians benefiting from the relief of debt settlement. If the service is banned, their progress and right to choose debt relief would be erased.
Debt Settlement is one of the few reliable alternatives to bankruptcy. Many who qualify for settlement programs are ineligible for other forms of debt relief like debt consolidation loans. Keeping the option legal and accessible helps consumers who feel they have nowhere else to turn and puts them on a path to recovery.
Creditors Who Work With Debt Settlement Companies Benefit From the Program Too
Creditors participating in settlement programs in 2019 received more than $658 million in revenue that might otherwise have been delayed or not received at all. Although debt settlement companies and creditors are not necessarily allies, they are not adversaries.
Debt settlement companies have strong, good-faith relationships with creditors that allow them to negotiate fair settlements that are a win for both the consumer and the creditor.
Debt Settlement Ban Would Do More Harm Than Good
North Carolinians cannot afford for the General Assembly to eliminate their freedom to choose settlement. Economic conditions demand that lawmakers consider what is best for their constituents and vote no on legislation that would do more harm than good.
Keep Debt Relief Legal in North Carolina Is Good For All
The debt relief industry provides vulnerable citizens with a private-sector alternative to the pitfalls of bankruptcy and has demonstrated its eagerness to operate in good faith under a system of best practices and rigorous consumer protections.
If you believe that people have the right to private debt relief options that are more beneficial to consumers than consolidation loans and bankruptcy, visit Change.org and sign a petition telling North Carolina’s legislators to say “no” to HB 76.