No one wants to get into debt. Families don’t plan on a financial crisis upending their lives. Yet, life is not always fair, people don’t always make good decisions, investments go sour, and unexpected expenses crop up. When someone finds themselves in crisis, they need help; options to get out of trouble. That’s what debt settlement companies do for people in financial crisis.

But that help is now in jeopardy.

Legislation pending at the North Carolina General Assembly would eliminate this option for North Carolinians. House Bill 76 would outlaw a federally regulated business, thereby prohibiting debt settlement or adjustment with certain companies. It would be out of step with the free-market-oriented approach to governance we’ve seen from North Carolina legislators over the past decade, and it would have negative, unintended consequences for households across the state.

Debt settlement companies work with clients experiencing significant financial difficulty and who are unable to satisfy their debt obligations or are unable to negotiate a settlement with unsecured creditors. These clients cannot qualify or afford other options like consumer credit counseling or proceed with bankruptcy claims. The debt settlement industry is highly regulated by the U.S. Federal Trade Commission (FTC) and is required to adhere to all FTC consumer protection guidelines. There is no fee charged to consumers, and they can withdraw from their arrangement with the company at any time, for any reason.

A Harvard Kennedy School study from this year reveals that 74 percent of individuals settle at least one account in the first 36 months after enrolling in a debt settlement program, with an average debt write-down of 32 percent. The study concludes that debt settlement programs benefit many financially distressed individuals, especially those not filing for Chapter 7 or Chapter 13 bankruptcy protection.

According to the American Fair Credit Council, more than 68,000 North Carolinians used debt settlement services in 2020. People are putting their lives together and getting back on their feet. As we come out of the pandemic and over a year of economic devastation, of businesses shut down, investments lost, and record numbers of people out of work, the financial and mental impact is going to be devastating.

People who are experiencing financial hardships need options now more than ever.

Not only does House Bill 76 outlaw the debt settlement industry, but it also declares it an unfair trade practice and makes it a crime. A crime with possible jail time and a $1,000 penalty.

If lawmakers are uneasy with debt settlement companies, they should consider regulating the industry in a way that is consistent with federal regulations while allowing people the freedom to have options that best fit their particular needs, no matter how difficult those needs may be.

Needing to work with a debt settlement company to negotiate debts isn’t ideal. No one wants to be in such a position in the first place. But when there is a need, and a legitimate business can help fill that need, the government ought not to outlaw it.

Becki Gray is Senior Vice President at the John Locke Foundation and Patrick Gleason is Vice President of State Affairs at Americans for Tax Reform.