Point of View

Collecting on debts: Bill goes too far for N.C.

February 15, 2011 

— North Carolina has a proud tradition when it comes to the relationship between its citizens and the businesses that sell them things and lend them money. Since as far back as most people can remember, the state has pursued a generally pro-consumer approach.

Owing in part to the Great Depression, in which so many farmers and families lost everything they had because of the failure of public regulators to establish a level playing field for average investors, borrowers and consumers, North Carolina generally sets high standards for corporate actors.

Add to this the state's history as a home to large numbers of blue-collar workers living paycheck to paycheck and it's easy to see why many of our leading politicians have sought to keep at least some kind of a rein on exploitive practices - be they predatory mortgages, "payday" loans or any number of other practices that place average folks at a disadvantage.

In North Carolina, the presumption is that when it comes to consumer financial transactions, big businesses can take care of themselves - especially those that lend money to people living on the edge; it's average people who need protection

Another example of this pro-consumer orientation can be seen in the limits we place on wage garnishment. That's the practice of turning employers and/or banks into collection agencies for creditors.

North Carolina has generally frowned upon wage garnishment, reserving it only for a few special debts such as back taxes and child support. For decades, lawmakers have resisted proposals to allow wage garnishment by general creditors such as credit card companies, retailers and consumer lenders.

Now however, with a new conservative General Assembly in power, some creditors think they see an opportunity to reverse this longstanding policy. A bill sponsored by Rep. Tim Moore, a Cleveland County Republican, would - at least as it was introduced during the early days of the session - do just that by legalizing wage garnishment for general debts for the first time.

Fortunately, early indications from the General Assembly are that a number of concerned groups, individuals and legislators of both parties are raising serious concerns about such a radical change.

Employers, for instance, are worried about placing themselves in an adversarial, debt collector relationship with their employees - not to mention all the added paperwork and bureaucracy. Especially for companies that employ people living paycheck to paycheck, garnishment for general debts such as credit card bills can be a real hindrance to keeping a stable workforce. They know that many workers would simply quit and seek work in the "cash economy" rather than subject their paychecks to garnishment.

Many businesses that provide necessities of life - mainstream mortgage lenders, landlords, public utilities and the like, are also understandably concerned that wage garnishment will, in effect, make them lower-priority creditors. With good reason they worry that customers who ordinarily prioritize their limited incomes to pay them will now have a lot less money to work with.

Naturally, consumer and worker advocates are concerned as well. They see that, as in other states, garnishment will push more families into foreclosures, evictions and, ultimately, poverty.

Many government officials are worried too. They see a likely increase in the demand for services such as food stamps and Medicaid and, conversely, a drop-off in tax revenues as more people abandon the traditional workforce.

There is at least one group of people who probably have mixed emotions about garnishment: the law firms that handle bankruptcy cases.

While generally sympathetic to debtors and well-aware of the way credit card outfits and other lenders can take advantage of borrowers, the bankruptcy folks also know that garnishment will be good for their business. North Carolina's lack of garnishment for general debts is one reason its bankruptcy rates are lower than in most other states.

Of course, it is true that there are deadbeat debtors out there. The sponsor of the bill, Rep. Moore, apparently represented a very sympathetic client in his law practice who, after being ripped off by a small businessman, sued and could not collect on the debt. This is certainly a situation that ought to be addressed - perhaps with legislation.

It is not however, grounds for overturning a decades-old and successful policy like North Carolina's anti-garnishment rule. To do so would be to attack an annoying fly with a giant sledgehammer.

Everyone is for making deadbeat debtors pay up, but that doesn't mean we should reverse decades of proud tradition and put employers in the business of collecting people's old credit card bills. Lawmakers can and should fashion a smarter, less heavy-handed solution.

Rob Schofield is the director of research and policy development at N.C. Policy Watch (ncpolicywatch.org).

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