On March 25, 2025, North Carolina Senators Johnson (R), Overcash (R), and Jackson (R) as primary sponsors introduced Senate Bill 491 (“S.B. 491” or the “Bill”), which seeks to license, examine, and regulate debt settlement services in the State, including proposed fee caps. The newly proposed legislation would create the North Carolina Debt Settlement Services Act (the “Proposed Act”), and if approved by both the State Senate and House of Representatives, would become effective January 1, 2026. The Bill has passed its first reading in the Senate and has been referred to the Senate Committee on Rules and Operations. Should the bill pass its second and third readings with the Senate, it will be considered by the House of Representatives, which will use the same process to decide whether to approve the Bill.
Under the Proposed Act, no person may engage in the business of providing debt settlement services without first being licensed with the NC State Banking Commission (the “Commission”). “Debt settlement services” is broadly defined as “any action or negotiation initiated or taken on behalf of a debtor with any creditor of the debtor for the purpose of obtaining debt forgiveness,” and the requirements for licensees are fairly extensive. The Proposed Act does, however, carve out several exemptions and would not apply to “any person licensed to practice law in the State.”
The application for licensure would include, among other requirements, the applicant's financial statements, a federal and State criminal history record check and fingerprints from the applicant's control persons, and “any other information required by the Commission concerning the financial responsibility, background, experience, and activities of the applicant and [control] persons.” The application fee is set to be two thousand dollars ($2,000), and applicants would also be required to post a surety bond of one million dollars ($1,000,000) with the Commission and keep said bond maintained once licensed. Licensees would be required to submit an annual report to the Commission each year regarding its debt settlement services in the State, along with a one thousand dollar ($1,000) annual fee.
Debt settlement service agreements are to meet certain specifications and include the information of the Commission and NC Consumer Protection Division of the NC Office of Justice for the purpose of filing complaints. Debt settlement service fees are also to be limited to either fifteen percent (15%) of the principal amount of debt or twenty percent (20%) of the difference between the amount of debt at the time the license settles the debt and the amount to be paid by the debtor pursuant to the settlement (i.e., the amount of savings). Among other prohibitions, licensees may not enroll any debts that are less than 60 days delinquent, may not instruct, encourage, or promote a debtor to obtain additional extensions of credit, and may not require a debtor to open an account with a payment processor or other depository institution as a condition of receiving debt settlement services (although they may request the debtor to do so). The entity administering the account may not give or accept any money or other compensation in exchange for business referrals from the licensee.
The Commission would hold the authority to investigate and examine the affairs, business, premises, records, and filed complaints related to any entity licensed or required to be licensed under this Article to determine whether the business complies with the Proposed Act and rules adopted. The Commission may impose civil penalties for violations under the Proposed Act of up to one thousand dollars ($1,000) per violation. The violations may also be referred to the Attorney General, who may bring further investigation, a cease and desist order, and an action in court against violators of the Proposed Act to seek an injunction, damages, and/or restitution to debtors.
The Proposed Act would also create a private right of action for individuals against violators, and any violation of the Proposed Act would be deemed an unfair or deceptive trade practice, allowing for attorney fee awards and treble damages. Each violation is also to be considered a Class 3 misdemeanor with criminal penalty.
We will continue to monitor this newly proposed legislation and update you as it progresses through the NC legislative process. If you would like to read the full text of the Proposed Act, you may do using the following link: https://www.ncleg.gov/Sessions/2025/Bills/Senate/PDF/S491v0.pdf.
