Monday, 03 May 2021 11:31

OP-ED: Debt settlement bill would only hurt debt-ridden North Carolinians

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OP-ED: Debt settlement bill would only hurt debt-ridden North Carolinians Pixabay

Debt-ridden North Carolinians were already in trouble. Now, state lawmakers may stop them from swimming out of the red.

In the Tar Heel State, residents account for hundreds of billions of dollars in debt, due to student loans, mortgages, credit cards, and other contributing factors. In average credit card debt alone, North Carolina ranks 26th in the country, with a typical resident carrying more than $8,000 in debt. The COVID-19 pandemic has only exacerbated the issue, with financial security more difficult to come by for many workers.

Making matters worse, Representative Julia Howard (R-District 77) has reintroduced House Bill 76, which would effectively prohibit debt settlement companies from doing business in North Carolina by making debt settlement an “unfair trade practice.” Representative Howard drummed up support for her bill by providing gross mischaracterization of the industry and its marketing practices. Armed with false information, the state’s House of Representatives passed the bill on a 123-0 vote, targeting an entire industry with such a broad stroke that it will be catastrophic for consumers.

First, it’s important to understand the purpose that debt settlement serves, given the pervasiveness of consumer debt in North Carolina. Debt settlement companies—in particular, the good actors that represent the overwhelming majority of the industry—allow customers with a significant amount of unsecured debt to settle that debt, potentially lightening their total debt load and reducing their monthly payments without resorting to the nuclear option of bankruptcy.

On behalf of consumers, debt settlement companies negotiate with creditors to allow those customers to pay a “settlement” amount that resolves the debt in full. The agreed settlement amount is typically a percentage of the initial amount owed, which significantly reduces the principal balance owed by the consumer and provides much-needed relief. 

Debt settlement is entirely different from credit counseling, which only reduces the interest rates paid on debt. Moreover, credit counseling companies are often paid by credit card companies, whereas debt settlement companies are independent advocates for consumers that only charge fees based on successful settlements. In 2018, those settlements led to more than $70 million in net consumer savings for North Carolinians.

Those who vilify the debt settlement, such as Rep. Howard, fail to understand that the vast majority of the industry does not make false promises or charge upfront fees without delivering. Led by the newly formed Consumer Debt Relief Initiative, which holds its members accountable and educates consumers about their debt relief options, our industry’s top priority is serving the customer. The millions of North Carolinians carrying debt deserve any and every option to resolve that debt, especially in a pandemic economy that has seen businesses close, jobs cut, and lives ruined.

In today’s world, debt settlement is only becoming more important, not less. Since 2015, the total available market for debt settlement has grown by 50 percent. Due to the coronavirus, the TAM for debt settlement is expected to rise more than 70 percent in 2021. Indeed, the number of consumers utilizing debt settlement—in North Carolina and across the country—will rise at a compound annual growth rate of nearly 30 percent.

And consumers overwhelmingly support debt settlement. According to the Consumer Financial Protection Bureau, the debt settlement industry is largely ethical and self-policing, with debt settlement companies representing less than 0.03% of all consumer complaints.

Our industry needs national, state, and local officials to work with us, as we continue to set the best practices and standards to serve customers in need. Eradicating the entire debt settlement industry does nothing but leave debt-ridden consumers hanging out to dry, in addition to slashing good-paying jobs in the middle of a pandemic. Does that sound like a good idea?

State governments should not be in the business of eliminating viable options that would assist consumers who are dealing with the financial stresses of the post-pandemic recession. We, industry and government united, should be in the business of helping debt-ridden North Carolinians.

Let’s start by striking down H.B. 76 and protecting debt settlement as an option for those who need it.

Corey Butcher serves as vice president of the Board of the Consumer Debt Relief Initiative.