NC must ban debt settlement companies

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The Camp Lejeune Marine Base Chief of Staff on Wednesday called on North Carolina lawmakers to ban debt settlement companies, arguing they hurt service members and their families who call on them .

A bill to prevent them from operating in the state was passed by the NC House in May in what looked like a unanimous vote. The bill was passed by several North Carolina Senate committees, but was not put to a vote.

The companies say they are helping people with heavy debts reduce and pay off their debts. A ban “would eliminate a critically important tool on which thousands of North Carolinians depend to settle unmanageable unsecured debts,” said spokesman Steve Boms of the American Fair Credit Council. The organization represents debt settlement companies.

Camp Lejeune Chief of Staff Col. Nicholas Davis and other critics argue that debt settlement companies prey on desperate people who have tens of thousands of dollars in debt and end up leaving behind many clients in a worse situation – sometimes with more debt than before at higher interest. rates.

In his letter to the General Assembly Wednesday, Davis said the ban is necessary to allow “service members to concentrate on their mission without the distraction and financial damage caused by these companies.”

NC State Employees’ Credit Union Chairman Michael Lord also urged lawmakers to pass the ban on Monday.

“The catastrophic financial and emotional effects on the lives of people, including many of our members, caused by the unfair and abusive ‘bait and substitution’ practices of some industry debt settlement service providers have attracted our attention, ”Lord wrote.

A 1963 state law prohibited what was then called “debt adjustment”. There were a few limited exceptions.

Non-state companies have exploited the exemptions, said Republican State Representative Julia Howard of Mocksville. Howard is a senior member of the House and the principal principal sponsor of House Bill 1067, “Modernize Debt Settlement Prohibition”.

Industry representatives and consumer advocates discussed in June whether they could compromise on the bill but found no deal, said Bons from the Industry Credit Council and Al Ripley from the NC Justice Center. The Justice Center is a public policy organization that supports the ban.

How debt settlement works

Advertisements from debt relief companies on television and online tell potential customers that if they subscribe to their services, the companies will negotiate with their lenders to reduce their total debt. And they will come up with a plan to pay off all the debt.

Customers are urged to stop paying their creditors and send their money to the debt service company, said Ripley and bankruptcy lawyer Ed Boltz of Durham. Boltz customers include people who have had issues with businesses.

The payments are used to build a fund to eventually pay off the debt, Ripley and Boltz said, and also include the debt settlement company‘s fees.

One of the problems with this process, Ripley said, is that some credit card companies never negotiate to lower bills. Plus, lenders sue when customers stop paying their bills, Ripley and Boltz said.

Lenders then get judgments and liens against customers.

Another problem: If a credit card company concludes that a customer is no longer going to pay the bill, it informs the Internal Revenue Service. Then the value of the unpaid debt is added to the client’s taxable income.

Ripley and Boltz said two of Boltz’s clients, an elderly couple in Durham, had racked up nearly $ 73,000 in credit card debt for medical bills and did not want to file for bankruptcy. According to documents Boltz and Ripley shared, Freedom Debt Relief company told the couple their debt could be reduced to anywhere from around $ 56,600 to $ 62,600.

The couple started paying Freedom $ 1,244 per month, Botlz and Ripley said. Eight months later, Ripley said, the couple had judgments and liens against them and risked losing their home under a court order to pay off their debts.

The husband called Freedom Debt Relief to report what had happened, Ripley said, and the company directed him to a lender who offered the couple a new loan at an annual interest rate of 25.18% . The couple are said to borrow nearly $ 56,000, have finance charges of over $ 42,000 and repay nearly $ 98,000 to about $ 907 per month, according to the documents.

Instead of closing the deal, the couple contacted Boltz and filed for bankruptcy, Ripley said.

Ripley and Boltz said that if the couple had contacted Boltz in the first place, for a fee of $ 1,000 to $ 1,500, Boltz could have arranged for them to go bankrupt and have the credit card debts discharged. and do so without facing a tax penalty. .

“A viable alternative”

Freedom did not respond to a media inquiry on Tuesday. It appears he referred his comments to the American Fair Credit Council. Spokesman Steve Boms said he was responding to this article following inquiries to the board and debt service companies.

Bill 1067 “would eliminate a critically important tool upon which thousands of North Carolinians depend to settle unmanageable unsecured debts,” Bons said. “Debt settlement has proven to be an important solution and a viable alternative to bankruptcy for thousands of North Carolinians every year.”

He said that in 2018, debt settlement companies saved North Carolina customers an estimated $ 72 million.

North Carolina Attorney General Josh Stein’s office said the agency has received nearly 300 consumer complaints against debt relief providers since 2011 and has filed eight lawsuits against those companies since 2010.

In one of the enforcement actions, about 1,400 consumers in the state paid the debt relief provider $ 8.5 million and less than 13% of their money went to creditors, the government said. Stein’s office.

Paul Woolverton can be reached at [email protected] and 910-261-4710.

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