Bill would close loophole on debt settlement companies, put them out of business in NC

Out-of-state companies that do this work have registered nearly a dozen lobbyists in Raleigh, most of them in recent weeks. The bill would essentially prohibit the companies from doing business in North Carolina.

Advocates say the companies target people with low credit scores and mounting debt, then hit them with a bait-and-switch that leaves people in even more debt.

The practice is already illegal, but the companies operate through loopholes the bill would close, according to Al Ripley, a consumer protection lobbyist at the North Carolina Justice Center, and state Rep. Julia Howard, R-Davie, lead sponsor on House Bill 1067.

The bill seemed so uncontroversial in the House that it didn't even get a recorded vote, moving through the chamber instead on a voice vote that didn't produce a formal record of the ayes and nays. Howard and other bill supporters said the vote was unanimous, just as votes had been in committee.

But the bill got pulled back last week in the Senate. Sen. Danny Britt, R-Robeson, who chairs the Senate Judiciary committee looking at the bill, said the pressure has been intense.

“Within 24 hours, they were down here banging on doors," Britt said of industry lobbyists. "It's a signal that we’re doing something really right – or really wrong – and I think we’re doing something really right.”

At least four companies and an industry group are working against the bill, including Freedom Debt Relief, whose spokesman said advocates have unfairly characterized the company's practices.

"Less than 1 percent of our clients are sued by creditors," spokesman Michael Micheletti said in an email. "More than 1,000 Freedom Debt Relief clients and graduates across the state have written personal messages to their members of the North Carolina Senate in the past week to express the massive impact Freedom Debt Relief has had on their financial lives."

Micheletti said that, if the bill passes as written now, "it would eliminate immediately a valuable consumer finance option during this time of uncertainty."

Ripley said people struggling with debt are much better off going to a nonprofit credit counselor that charges $40 a month maximum or, in extreme cases, declaring bankruptcy.

"You actually get real protections," he said. "Never go to a debt settlement company."

Supporters had hoped to move fast on the bill. With coronavirus pandemic-related shutdowns wrecking whole segments of the economy, more people will be in financial crisis.

"A person's getting ready to lose their pickup truck or their home or something, and you push a piece of paper to them – it's 20 percent," Howard said. "It's a 20 percent interest rate.

"And the things that they do ... sometimes they don't do much," she added.

Ripley said some of the companies mine information from credit reporting agencies, then send letters offering low-interest loans. When people call to take advantage of the loan, they're told they don't qualify but that they can sign up for debt settlement program.

People start paying them instead of their creditors, Ripley said.

"Months go by, you think that they're representing you, but they're not," he said. "You end up with judgments against you, and then you end up accepting one of their high-cost debt consolidation loans."

The state Attorney General's Office said it has gotten about 300 consumer complaints against debt relief providers since 2011. It has filed eight enforcement actions against various companies since 2010, spokeswoman Laura Brewer said.

Brewer said those numbers belie the depth of the problem because consumers rarely file complaints with the Attorney General's Office.

"We very often receive only one or two complaints about a given entity, but then, upon investigation, find widespread consumer harm and misleading and deceptive practices," she said in an email.

It's not clear when the bill will be back before committee. Britt said late last week that he's trying to get consumer advocates and industry representatives to come up with a compromise.

"If they can’t compromise, then we’re going to go with what we have," he said.