HB 734 — Modernize Debt Settlement Prohibition (North Carolina, 2025)
Status / Key Dates
- Filed/Introduced: April 2, 2025
- Primary sponsors: Reps. Howard, Setzer, B. Jones, Liu
- Committee referral: Judiciary 1 (if favorable, Finance; if favorable, Rules, Calendar & Operations of the House)
- Current status: First edition and referred to committee (see legislative history for subsequent actions)
Purpose
- Modernize and expand statutory prohibitions on “debt adjusting” and “debt settlement” by recodifying the existing criminal statute into the Unfair and Deceptive Trade Practices framework (Chapter 75) and by (1) clarifying definitions, (2) making debt settlement an unfair trade practice subject to civil enforcement, (3) expanding civil remedies, and (4) limiting certain authorized debt-relief acts.
Major provisions / changes
- Recodification: Moves former Article 56 of Chapter 14 into a new Article 9 of Chapter 75 (G.S. 75‑151 et seq.), aligning debt‑settlement rules with consumer protection law.
- Definitions: Clarifies terms including “debt adjusting,” “debt settlement,” “debt adjuster,” “debtor,” and adds “affiliate.”
- “Debt adjusting” / “debt settlement” includes contracting to collect periodic payments from a debtor and acting as an intermediary to reduce, settle, or alter debt terms, including where fees are charged in advance of completing settlement.
- Prohibition: No person (directly or through affiliates) may engage in, offer to engage in, or attempt to engage in debt adjusting or debt settlement.
- Criminal penalty: Engaging in prohibited conduct is a Class 2 misdemeanor.
- Civil enforcement / remedies:
- Attorney General or district attorney may sue in Superior Court to enjoin debt‑adjusting/settlement activities as unfair or deceptive trade practices.
- Courts may appoint receivers for funds/property, order returns to debtors, assess civil penalties under G.S. 75‑15.2, and award attorney fees to the State under G.S. 75‑16.1.
- These remedies are stated to be in addition to other remedies under law.
- Authorized/excepted acts: Lists persons/transactions not treated as debt adjusters, including:
- Regular full‑time employees acting on an employer’s debts;
- Actions pursuant to court order or other law;
- Creditors or agents acting without cost to the debtor regarding debts owed to that creditor;
- Loans arranged at a debtor’s request where disbursement is authorized by the debtor and no adjustment fee is charged;
- Intermittent/casual assistance not held out as a business;
- Attorneys acting within the attorney‑client relationship (with certain limits);
- Credit counseling organizations and similar entities (subject to statutory conditions).
- Fee limits / “nominal consideration”: Defines “nominal consideration” for debt management plans as up to $40 origination/setup and up to 10% of the monthly disbursed payment (capped at $40/month).
Who is affected
- Primary: businesses and individuals that provide debt‑settlement, debt‑adjusting, or related intermediary services (including firms charging advance fees).
- Secondary: consumers/debtors seeking debt relief, creditors, nonprofit credit counselors, licensed attorneys, and state enforcement agencies (AG / district attorneys).
Potential impact
- Strengthens consumer protection tools against fee‑for‑advance debt settlement schemes by (a) treating prohibited practices as unfair trade practices with civil enforcement mechanisms and (b) retaining criminal sanctions.
- Clarifies permissible activities (credit counseling, attorney representation, creditor actions), and sets explicit nominal fee limits for debt‑management plans.
- May reduce consumer harm from unscrupulous debt‑settlement providers and make enforcement more administrable under Chapter 75.
Notes
- The bill’s full text contains additional technical provisions and detailed exceptions; interested readers should consult the bill language in G.S. 75‑151 et seq. and the legislative history for amendments or committee reports.
