A pair of bills have been introduced in the North Carolina legislature that aim to overhaul the debt settlement industry, albeit by different means. One bill seeks to license and regulate debt settlement providers, while the other seeks to eliminate it entirely.
Senate Bill 491: Licensing and Regulation of Debt Settlement Providers
On March 25, 2025, a trio of Republican North Carolina Senators introduced Senate Bill 491, which aims to create the North Carolina Debt Settlement Services Act. This legislation proposes a regulatory framework that would license, examine, and regulate debt settlement services in the state, including fee caps. If passed, the bill will come into effect on January 1, 2026.
Under the bill, debt settlement services would be required to obtain a license from the North Carolina State Banking Commission. The bill defines “debt settlement services” as any action or negotiation initiated on behalf of a debtor to obtain debt forgiveness. The application process for licensure is stringent, requiring financial statements, criminal background checks, and fingerprints from key personnel, as well as a $2,000 application fee. Successful applicants would also need to post a surety bond of $1 million and pay an annual fee of $1,000.
Debt settlement service agreements would need to comply with strict guidelines, including detailed disclosures about fees (which would be capped at 15% of the debt or 20% of the debt reduction). The bill also prohibits certain practices, such as enrolling debts less than 60 days delinquent and promoting additional credit extensions. Violators could face civil penalties, criminal prosecution, and private lawsuits, with the potential for treble damages.
House Bill 734: Prohibition of Debt Settlement
In stark contrast to Senate Bill 491, just a week later, a quartet of Republican North Carolina House Representatives introduced House Bill 734, which seeks to expand the existing prohibition of debt adjusting to include debt settlement. Currently, only “debt adjusting” is prohibited under state law. If passed, H.B. 734 would make debt settlement an unfair trade practice, banning it outright in North Carolina, effective July 1, 2025.
The bill defines “debt settlement” as the practice of acting as an intermediary between a debtor and creditor to reduce, settle, or alter debt terms. The proposed law also voids any contracts for debt settlement, making them unenforceable. Violators of the bill could face criminal penalties, civil penalties, and be subject to enforcement actions from the Attorney General, who would have the authority to seek restitution for affected debtors.
H.B. 734 introduces robust civil remedies for consumers, allowing them to seek restitution, attorney’s fees, and treble damages if they are harmed by debt settlement services. The bill also empowers the Attorney General to pursue legal action against violators.