ARM Industry Discusses Collection Law Changes in North Carolina

Accounts receivable management industry experts say that the recently approved North Carolina law — SB 974, which will go into effect October 1, barring an unexpected governor’s veto — will have harmful unintended consequences on consumers along with an unknown impact on debt buyers.

The bill incorporates a debt buyer under the definition of a collection agency and specifically defines a debt buyer as a person or entity engaged in the business of purchasing delinquent or charged-off consumer loans or consumer credit accounts for collection purposes, whether it collects the debt itself or hires a third party for collection or an attorney-at-law for litigation in order to collect such debt. SB 974 dictates that both active and passive asset buyers are defined as a collection agency ("North Carolina Legislation Targets Asset Buyers, Impacts Debt Collectors," Aug. 24).

Under terms of the proposed legislation, debt buyers are required to provide receipt after payment and itemization of debt, according to Barbara Sinsley counsel to DBA International, an association for debt buying professionals. “Even the principal [creditor] can’t break that down.” Debt buyers often aren’t buying the entire debt, but only a portion of it, she added.

Although North Carolina currently requires a collection agency to provide a consumer a receipt of payment if the payment is in cash, SB 974 requires a receipt be provided when any payment is received by or on behalf of a debt buyer. In addition to what must be included in a receipt, the receipt for payment received by or on behalf of a debt buyer must also include the name of the creditor(s) for whom collected, the account number assigned by the creditor(s), and the account number assigned by the original creditor if different from the current creditor for whom the debt is collected.

The receipt must also clearly state whether the payment is accepted as either payment in full, as a full and final compromise of the debt, or state the balance due after payment is credited if the payment is not in full.

Other portions of the bill that will directly impact debt buyers, according to DBA International:

•  It will be deemed unfair to bring suit or collect at all on debt past the statute of limitations.
• To file suit, valid documentation including an itemized accounting and proof of ownership of the debt must be filed.
• Thirty (30) days written notice must be given prior to suit.
• Penalties not less than $500 per violation up to $4,000.
• Attorney’s fees will not be awarded absent a signed writing and an unbroken chain of assignment.

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While lobbying against the bill, DBA and its representatives raised the lack of clarity in the bill’s language with North Carolina legislators. With that in mind, DBA suggests that each DBA member consult with in-house counsel or retained attorneys to seek advice as to the Act’s meaning. Among its several new effects, the law significantly increases the penalties for violations of its provisions, so an informed analysis of the law will be important to the debt buyer community.

The adverse impact of these rules on consumers could be substantial, according to Sinsley. If actual debt collection by debt buyers becomes too onerous under the rules, there could be a “rush to the courthouse” to file suits against debtors so that debt buyers can protect their interests, according to Sinsley. Another possibility would be for debt buyers to forgive the debt, issuing 1099C forms to taxpayers, which would impact them at tax time.

Sinsley stressed that debt buyers should consult with their own attorneys to determine the ramifications of the proposed law on their firms.

“It’s hard to know the impact until we dive into it,” said Jeff Berenholz, general counsel for Hudson & Keyes, Painsville, Ohio, a debt buyer that has business throughout the United States, including North Carolina. “It could force some lenders to change their policies [regarding information provided to debt buyers].

Though the proposed new rules will be more cumbersome to comply with than the old ones, Berenholz doesn’t see them negatively impacting his firm’s operations in the Tar Heel state.

“We’re not going to pull out,” Berenholz said. “We’re going to comply with the new rules. We’ll get all of the documents that we need to beforehand.”

The firm has counsel in North Carolina who was involved in the legislative process, Bernenholz added. However, some parts of the law, like the statute of limitations, are still not clear.

Though the law increases some of the fines for collection firms, Henry Keen, vice president of sales with Prince, Parker & Associates in Charlotte, N.C., doesn’t expect to see any impact of the law on his firm because while it collects debt, it is not a debt buyer.

“It will put debt buyers under some of the same rules that we have been under for years,” Keen said, blaming the increase in penalties and a small number of vocal voters. “We haven’t had many problems [with collections firms violating the rules] in North Carolina.”