Modernize Debt Settlement Prohibition
House Bill 734 revises North Carolina’s longstanding prohibition on debt adjusting by moving the law from Chapter 14 (criminal code) into Chapter 75 (consumer protection/unfair trade practices) and expanding it to expressly cover “debt settlement” as well as debt adjusting. The bill broadens the statutory definitions so that businesses or individuals acting as intermediaries between debtors and creditors to reduce, settle, or alter debt terms are covered, including arrangements where fees are charged before services are completed. It also clarifies who is and is not covered by the prohibition, including certain employees, creditors, attorneys acting within the attorney-client relationship, court-authorized actors, and narrowly defined nonprofit credit counseling/debt management organizations that meet specified conditions.
The bill creates or preserves criminal and civil consequences for prohibited conduct. Engaging in debt adjusting or debt settlement would be a Class 2 misdemeanor, contracts for such services would be void as against public policy, and violations would also be treated as unfair or deceptive trade practices under G.S. 75-1.1. The Attorney General or a district attorney could seek injunctions, and the court could appoint a receiver, assess civil penalties, and award attorneys’ fees to the State. The act is effective July 1, 2025, and applies to offenses committed on or after that date.
The bill’s impact on state law is to modernize and reorganize North Carolina’s debt-settlement restrictions while strengthening consumer-protection enforcement tools. By recodifying the provisions into Chapter 75, the measure aligns the prohibition with the state’s unfair trade practices framework and expands the remedies available to regulators and affected debtors. It also creates a more detailed statutory safe harbor for legitimate credit counseling and debt management services that charge only nominal administrative fees and meet accreditation and disclosure requirements.
The available voting history suggests the bill was not controversial in the House at the second reading stage, passing 112-0. No committee transcripts were provided, so there is no recorded debate in the materials about opposition or amendments. Based on the text, the bill appears aimed at curbing predatory debt-relief businesses while preserving access to bona fide nonprofit counseling and attorney-led services.
The main points of contention, as reflected by the structure of the bill rather than recorded debate, would likely center on how broadly “debt settlement” is defined, whether the fee limits and accreditation requirements are too restrictive for legitimate providers, and whether the criminal and unfair-trade-practice penalties are sufficiently strong to deter abusive actors. The bill also distinguishes between prohibited third-party settlement services and permitted nonprofit or professional services, which suggests the legislature was trying to balance consumer protection with continued access to lawful debt-management assistance.
H734 would recodify North Carolina’s debt-adjusting prohibitions from Chapter 14 to Chapter 75 and expand them to expressly include debt settlement, making violations both a misdemeanor and an unfair trade practice. It would void prohibited contracts, authorize injunctions and receiverships, and allow the Attorney General or district attorneys to seek civil penalties and attorneys’ fees. The bill also creates a detailed exemption for certain accredited credit counseling and debt management organizations that provide limited-fee services and meet disclosure, counseling, and accreditation standards.
The bill appears to have broad support, at least in the House, where it passed second reading 112-0. With no committee transcripts available, there is no documented floor or committee opposition in the provided materials. The overall tone of the legislation is consumer-protective and regulatory, aimed at modernizing an older prohibition and targeting abusive debt-relief practices while preserving legitimate counseling services.
The likely areas of contention are the breadth of the new definition of debt settlement, the treatment of upfront fees, and the limits placed on legitimate debt-management providers. Consumer advocates would likely support the stronger enforcement tools and broader prohibition, while some service providers or legal practitioners could be concerned that the language sweeps too broadly or imposes compliance burdens through accreditation and fee caps. The bill’s carve-outs for attorneys, creditors, and accredited nonprofit counseling organizations indicate an effort to address those concerns.