Across America, lawmakers at the national and state levels have their hands full. As the COVID-19 pandemic slows our return to normalcy, policymakers and regulators are dealing with the continued economic fallout amid countless other problems, trying to do what’s best for their constituents.
In North Carolina, however, the State House prioritized legislation that would drain the wallets of people statewide: House Bill 76, a measure that would ban debt settlement for consumers struggling with debt. overwhelming, including unsecured installment loans with excessive interest rates. A nearly identical bill died in the state Senate last year – and for good reason, as it would have harmed tens of thousands of North Carolinians who are in desperate need of financial assistance.
Sadly, the same measure was repeated last month at State House in a misguided attempt to eliminate debt settlement as an option for struggling consumers. If passed, the bill would almost certainly force thousands of North Carolinians into bankruptcy.
Debt settlement works by letting the private sector help clients reduce their debt. By partnering directly with consumers, debt settlement providers negotiate with creditors to reduce the amount of money the consumer owes. By setting up personalized plans for each client, these consumer advocates help them pay off their debts faster and for much less than they could have on their own.
Most clients across the country owe nearly $ 30,000 in unsecured debt on multiple accounts and are already behind on at least one and, in many cases, all. With the help of debt settlement, most will take the first step on the road to financial independence within the first few months: three out of four clients settle at least one account within the first four to six months of the process. registration.
Even among those who don’t complete their full program, debt settlement saves an average of $ 2.64 for every dollar in fees paid. Plus, for consumers whose only other option is bankruptcy, credit score recovery is much faster. Unlike bankruptcy, which can cripple credit scores for up to 10 years, debt settlement clients typically see their credit scores fully recover within four years of completing the program.
Last year, debt settlement companies settled nearly $ 100 million in unsecured consumer debt in North Carolina alone, and more than 60,000 North Carolinians are currently working with a debt settlement provider. to deal with their unmanageable unsecured debt. Despite these and other beneficial results, a handful of lawmakers in Raleigh are unthinkably trying to shut down debt settlement companies statewide and take this reasonable option away from consumers.
Our industry helps, no harm to consumers
In their mistaken view, promoted by high interest lenders and others, our industry is taking advantage of consumers. The facts tell a much different story, as evidenced by the groundswell of thousands of grateful North Carolina customers who recently reached out to their lawmakers, urging them to reject this bad bill.
Across the country, the debt settlement industry is helping hundreds of thousands of consumers manage and reduce their debt, saving Americans more than $ 1.65 billion a year.
Not everyone can participate in a debt settlement program. Before potential clients are accepted, they are vetted by the vendor to ensure they have the best chance for success through personalized financial analysis. Only about one in 10 people who apply to a debt settlement provider eventually sign up.
After joining a debt settlement program, clients begin to pay into a dedicated account to secure their eventual settlements. Under federal regulations, at no point in the process can a debt settlement company withdraw funds from a client’s account. These funds remain 100% under the control of the client.
Also thanks to these federal regulations, it’s only when consumers agree to a negotiated settlement and make their first payment that they are billed for any service. Additionally, clients are free to exit their program at any time, for any reason, without any financial penalty. The success of debt settlement companies depends on the financial recovery of their clients.
Now is not the time to ban a valuable service that comes to the aid of thousands of struggling North Carolinians, especially as many other workers weighed down with additional debt as a result of Covid- 19. North Carolina should give consumers more choice, not take away good options.
Denise Dunckel is CEO of the American Fair Credit Council, a non-profit trade association of debt settlement professionals.