Just a week from North Carlina Senators proposing Senate Bill 491, which seeks to create an act to license, examine, and regulate debt settlement services, North Carolina House Representatives Howard (R), Setzer (R), B. Jones (R), and Liu (D), as primary sponsors, proposed House Bill 734 (“H.B. 734” or the “Bill”), which seeks to modernize and expand the prohibition of debt settlement. Currently, only “debt adjusting” is prohibited under North Carolina law. If passed, the Bill would amend the existing law to expand the prohibition on debt adjusting to include “debt settlement,” effective July 1, 2025. The Bill passed its first reading in the House and has been referred to the House’s Judiciary 1 Committee. Should the Bill pass its second and third readings with the House, it will be considered by the State Senate, which will use the same process to decide whether to ultimately approve the Bill.
Under the proposed Bill, “no person, directly or through affiliates, shall engage in, offer to engage in, or attempt to engage in…debt settlement.” “Debt settlement” is broadly defined as “the business whereby a person holds themselves out as acting for consideration 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 payment of any debt of the debtor.” There would be some exemptions under the Bill; however, these appear to be very limited. For example, only “an attorney-at-law licensed to practice in [the] State and acting within the attorney-client relationship with the debtor” would be deemed exempt under the Bill, and the exemption would not include “services provided to a debtor by an attorney, or in the name of an attorney, who has entered in any arrangement with a person engaged, directly or through affiliates, in…debt settlement.”
All contracts for debt settlement would be deemed void as against public policy under the proposed Bill, and any violators may be found guilty of a Class 2 misdemeanor. The Bill would also grant the North Carolina Attorney General the authority to enjoin the continuation of any debt settlement business as an unfair trade practice and to seek restitution to debtors harmed by any violations. In addition, courts may assess civil penalties and award attorney’s fees against violators, alongside any other remedies available under North Carolina law. Any violation of the proposed Bill would also be considered an unfair trade practice, allowing for attorney fee awards and treble damages for private individuals.
It will be interesting to see how House Bill 734 and Senate Bill 491 progress through the North Carolina legislative process, as the bills present very differing approaches to debt settlement regulation in the state. Either way, it is clear that North Carolina legislators have their sights set on regulating debt settlement services in the state. We will continue to monitor the Bill and provide you with any relevant updates. If you would like to read the full text of the proposed Bill, you may do so using the following link: https://www.ncleg.gov/Sessions/2025/Bills/House/PDF/H734v1.pdf.
