NC Senate refuses to bring bill to floor that protects borrowers from abusive debt settlement practices

RALEIGH (June 26, 2020) – Predatory industries backed by powerful and influential lobbyists* are working to perpetuate practices that harm people who are low and moderate income and/or communities of color.

The North Carolina Justice Center and its allies worked to support HB 1067 Modernize Debt Settlement Prohibition to help protect borrowers from abusive debt settlement practices by closing two loopholes in North Carolina Law. NC Senate leaders refused to bring the bill to the floor despite it having passed the NC House and the Senate Finance, Judiciary, and Rules Committees unopposed.

“In recent years, we have seen a disturbing increase in North Carolina of debt settlement company activity, and with hundreds of thousands of our workers losing jobs, we anticipate a damaging surge of debt settlement company abuses that can be avoided by updating NC’s debt settlement law,” said Alfred Ripley, Director of the NC Justice Center’s Consumer, Housing & Energy Project.

  • These companies are based outside of North Carolina and are using misleading and aggressive advertising to convince consumers in distress that they can substantially reduce their debt, including credit card debt.
  • They charge high fees, and because consumers cannot afford to pay debt settlement fees and outstanding debt, they are often advised by some debt settlement companies to stop paying creditors, even when loans are current.
  • Consumers are often referred to lenders with whom the debt settlement companies have a relationship. As a result, consumers are saddled with new debt together with the debt settlement company’s high fees.
  • Frequently, consumers lose thousands of dollars in fees and few debts are settled. Consumers are also sued by numerous creditors, face multiple judgments, and their credit scores are significantly damaged.

This statement from a victim of a debt settlement company was taken from a recent complaint:

“I have paid the debt settlement company, over the last year, $12,464.40 for Debt settlement of 8 accounts. … I am now faced with 2 court filed Judgements against me and one motion to file Judgement…. Now not only do I have credit card debt to settle, I also have judgements that can lead to liens against my property AND there will be court costs that I will be responsible to pay.  What started out, to me, as a solution to help consolidate my debt has turned into a scam to take as much money from me as possible with no results in diminishing my debt.” China Grove NC

This legislation is supported by the NC Bankers Association, AARP North Carolina, the NC State Bar, the Resident Lenders of North Carolina, the NC Attorney General, the NC Justice Center, the NC Financial Services Association, and the Center for Responsible Lending.

The NC Attorney General’s Office reports that since 2010 it has been involved in enforcement actions against debt settlement companies involving 7,755 victims and over $14 million in illegally charged fees.

The CFPB and FDIC have brought enforcement actions against debt settlement companies and related entities such as Freedom Debt Relief as recently as 2018 The New York Attorney General Letitia James issued a statement earlier this week involving an action against Freedom Debt Relief.

“Today’s settlement will deliver more than $3.5 million directly into the pockets of struggling consumers, many of whom continue to suffer the devastating economic impacts of COVID-19,” James said. “Ten years after this company paid over $1.2 million to my office for its fraudulent and deceptive practices, Freedom Debt Relief is back in hot water for unlawful behavior once again. Today’s settlement will ensure additional restrictions are placed on Freedom Debt Relief so that the company can no longer take advantage of consumers.”

Debt settlement practices are illegal or heavily regulated in 18 states including South Carolina and Georgia. North Carolina’s laws prohibiting Debt Adjustment were first passed in 1963 and modernized in 2005.

*These lobbyists were retained by debt settlement companies, its associations, or companies that provide services to debt settlement companies: