A bill that would ease restrictions on the collection efforts of businesses that buy bad consumer debt has won the endorsement of a state Senate judiciary committee.
The bill won the support of a majority of the Judiciary I Committee in a voice vote Tuesday despite objections expressed by some Democratic legislators and consumer advocates. Critics are concerned that, if the bill becomes law, it would unleash a flood of abusive lawsuits aimed at consumers.
Sen. Michael Lee, a Wilmington Republican and a sponsor of S.B. 511, and other Republican legislators portrayed the measure as a reasonable way of making it easier for these businesses to collect debt owed by consumers who failed to pay their bills.
The bill centers around businesses that buy delinquent consumer debt, such as credit card debt, for pennies on the dollar from companies that have given up trying to collect on the debt. The debt buyers then try to collect the debt themselves.
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The bill would roll back restrictions that were imposed by a 2009 state law that was designed to protect consumers from abusive collection efforts.
It would eliminate the requirement that the debt buyer must have detailed information about the debt – including when and where the debt originated and specifics about the amount of interest and fees agreed upon – before suing a consumer in court.
“I think North Carolina has got the most restrictive legislation of any state in the country right now,” said Sen. Harry Brown, a Jacksonville Republican. “I think the intent of this bill is to find a balance between where we are today and maybe where we were before ‘09 ... I think the key point of this is, this is debt that someone has gone out and decided not to pay.”
But Kevin Anderson, who is in charge of the consumer protection division in the state Attorney General's office, said the 2009 law has been effective in stemming collection abuses. Those abuses included lawsuits against consumers who actually had paid their bills in full or who couldn't even determine, based on the scanty evidence presented in the complaint, whether they had paid or successfully disputed the bill. The debt at issue can be years old by the time the debt buyers acquire them.
Such lawsuits “seemed to be predicated on the notion that consumers just won’t show up and contest the suits. They didn’t have much evidence supporting” their claims, Anderson said.
"The rest of the country that hasn't passed laws like this are still struggling with the problem," he said. “We would caution against rolling back some of these protections.”
Ellen Harnick, senior policy counsel for the Center for Responsible Lending, complained the debt buyers simply aren’t willing to pay “a little more” for the underlying documentation required by the 2009 law.
That law, she said, was “passed by a unanimous vote in the Senate because, on a bipartisan basis, people were troubled on behalf of taxpayers about what was happening in the courts.”
Harnick also argued that the bill shifts the burden of proof from the debt buyer that brings a lawsuit to the consumer.
“The burden of proof is not shifted in this matter,” Lee countered. “I’m getting a little frustrated there are so many misstatements coming out.”
Lee, the Wilmington Republican, also stressed that consumers who are sued by debt buyers have every right to demand itemized documentation of their debt.
But Democrats argued that many consumers can’t afford a lawyer and aren’t savvy enough to contest these suits on their own.
“I know people who don’t even know that they can go themselves to court without a lawyer,” said Sen. Gladys Robinson, a Guilford County Democrat.
The Senate bill has been referred to the Finance Committee. A similar bill, H.B. 541, was discussed by the House Banking Committee on Monday but no vote was taken.