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NC lawmakers move again to shut down debt settlement companies

The same bill saw smooth sailing last year, until it didn't.

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By
Travis Fain
, WRAL statehouse reporter
RALEIGH, N.C. — State lawmakers will try again this year to close a loophole in North Carolina law that they say lets out-of-state debt settlement companies run bait-and-switch tactics on unsuspecting people.
This same bill cleared the North Carolina House easily last year and was moving through committee in the Senate when companies stepped up a lobbying effort to stall the measure, which they say will put them out of business in North Carolina and take a reasonable path out of debt off the table for consumers.

“It’s a very valid option," Tomas Gordon, chief executive of ClearOne Advantage in Baltimore, said in a phone interview. "You take this option away, and you’re going to see more people in financial ruin.”

But House Bill 76 sailed through committee Thursday morning without debate. The House Finance committee didn't take public comment, and multiple lawmakers spoke up to make the motion that moved the bill forward unanimously.

Predatory debt settlement is already illegal under North Carolina law, but the bill would close a loophole that has let out-of-state companies operate here anyway with late-at-night "we can settle your debt for less" commercials, said Rep. Julia Howard, R-Davie, the chairwoman of House Finance.

It also would let North Carolinians already under contract with these companies get out of them, Howard said. The measure has multiple Republican sponsors but also high support from the left, with the North Carolina Justice Center pressing for the bill.

“It’s a very dangerous product that hurts people," said Al Ripley, a lobbyist and attorney who heads the center's consumer, housing and energy project.

Howard pushed the measure last year as well. She complained Thursday that the bill was doing well until the industry "hired about 13 lobbyists."

Gordon and representatives for other companies fighting the bill this year say the state should pass new regulations instead of putting an end to the practice altogether. Gordon acknowledged the industry has "bad actors" but said they won't care about the rules.

ClearOne loses money for a year with every customer it brings in because it doesn't charge fees "until something's actually done" on the debt, he said. Industry lobbyists tried last year to get changes made to the bill, but Howard and other sponsors weren't willing. That seems to be the case so far this year as well, Gordon said.

Howard, an important member of the Republican majority in the House, said Thursday that there's a Senate version of the bill as well this year, giving the proposal better chances to pass both chambers and become law.

People struggling with debt should instead seek out regulated consumer credit counselors who, by law, cannot charge more than $40 a month, Howard said.

The American Fair Credit Council, one of at least two industry groups fighting the bill, ran the numbers just on customers in the districts of lawmakers on House Finance and said more than 5,000 people in those districts are getting help right now through a debt settlement program.

"For nearly two decades, this vital practice has helped hundreds of thousands of consumers grappling with what can become overwhelming financial burden," AFCC Chief Executive Denise Dunckel said in the statement. "If enacted into law, thousands of North Carolinians currently benefiting from debt settlement would immediately be forced into bankruptcy."

Gordon is part of a separate, recently created industry group, the Consumer Debt Relief Initiative.

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