On March 27, 2023, North Carolina Representatives Julia Howard (R), Mitchell Setzer (R), Jason Saine (R), Terence Everitt (D), and Bill Ward (R) introduced House Bill 481 (“Bill”), which seeks to establish an Act to modernize and expand the prohibition of debt settlement by making debt settlement an unfair trade practice, clarifying the definition of debt settlement, expanding civil remedies available to debtors, and limiting debt settlement acts that are authorized (“Act”). The Bill was filed in the North Carolina House Docket, where it passed its first reading and was referred to the House Judiciary 1 Committee. The Committee will study and review the Bill and determine whether it should proceed through North Carolina’s legislative process. Several North Carolina State Representatives, including Julia Howard (R) and Jason Saine (R), previously attempted to introduce similar legislation to establish such an Act in 2020 and 2021; however, the proposed legislation has never gotten past the North Carolina Senate.
This Bill seeks to amend North Carolina’s debt adjusting article to prohibit all debt adjusting and debt settlement services in the state generally, making it a Class 2 misdemeanor to engage in such services. The Bill broadens the definition of “debt settlement” to include any business that, for consideration, acts “as an intermediary between a debtor and one or more of the debtor’s creditors for the purpose of reducing, settling, or altering the terms of the payment of any debt of the debtor.” This definition would seem to exclude frontend debt settlement companies (“DSCs”). This Bill would allow an exception for organizations that provide “credit counseling, education, and debt management services to debtors” and follow a series of other guidelines as established by the Act. Additionally, attorneys licensed to practice in the State and acting within an attorney-client relationship with a debtor are exempt from adhering to the proposed Act; however, the Bill explicitly excludes services provided to a debtor by an attorney or in the name of an attorney who has entered into any arrangement with a person engaged, directly or through affiliates, in debt adjusting or debt settlement from this exemption.
We will continue to monitor House Bill 481 and update you on its trajectory through the North Carolina Legislature. If you would like to read the entire text of the proposed legislation, please click on the following link: https://www.ncleg.gov/Sessions/2023/Bills/House/PDF/H481v0.pdf.