A recent blog by Bankruptcy Canada (a private company) is right on the money. The Ontario Government has issued a Consumer Alert. They both deal with Debt Settlement Companies and new laws that were intended to help the consumer who has debt problems.
In their Consumer Alerts, the Ontario Government warns Ontarians that they need to “exercise caution when considering a contract for debt settlement services”.
They speak about the increasing number of complaints about debt settlement companies and the different business descriptions they use. You can read the Consumer Alert here.
You are also warned about fees and that these programs are not approved by the Ontario government.
The Ontario Consumer Protection Act (“CPA”) has been amended in the hope of protecting the consumer. This takes effect on July 1, 2015. Two main aspects are:
- The right to cancel a contract within the first year if the contract does not meet all the requirements of the CPA – including the right to get all your money back.
- The need for companies offering these services to be licensed under the Ontario Collections Agencies Act (now the Collection and Debt Settlement Services Act).
The CPA only requires registration if the debt settlement company is doing settlements made in installments. If it concerns a lump sum settlement, no registration seems to be required.
The law will greatly reduce the fees that were being charged by debt settlement companies, by setting maximums. For example, 15% of the amount paid (compared to common previous practice of a % of the total debt or, as we have seen, 50% of the savings). The government is therefore saying that up to July 1, 2015 Ontarians in financial difficulty were probably getting severely overcharged.
Law Firms and Trustees in Bankruptcy are exempt from this legislation. Hence the recent flurry of debt settlement companies seeking to align themselves with a Licensed Insolvency Trustee.
Popular opinion, which based on all the lobbying appears to have some weight, is that not-for-profit credit counselling agencies will also get an exemption. My discomfort with the true nature of many of these so-called not-for-profits is not a secret. The largest organizations are either supported by the big banks (so whose side is the agency really on?) or are closely related to a major USA player. These organizations’ financial results are posted on CRA’s web site here. Enter the name of the not-for-profit, click on “recent financial years” and you will likely also wonder where the millions of dollars are going to under “other”.
As Bankruptcy Canada so clearly points out in its commentary (read it here), the government is now permitting those who hold a license, to collect from the unfortunate debtor who cannot pay all his/her debts as the creditor is demanding (a.k.a. collection agencies) to act for these same debtors!
It makes no sense at all. In fact it is setting up the consumer to mistakenly trust the creditor’s agent to help the debtor. It is kind of like asking the enemy to send you ammunition during the war.
So what is a consumer to do? If you cannot pay your debts as the creditors demand to be paid there is only one long-established, trustworthy solution.
See a licensed Trustee in Bankruptcy. Not to go bankrupt – don’t let the name scare you off. Trustees are federally licensed and heavily supervised by their regulator on each and every file they handle. Trustees are obligated to review every option with you – even those that mean they do not handle your file and do not earn a fee. Their fees, in the vast majority of cases, are fixed by the Federal Regulator under a tariff – and effectively are paid by the creditors. Very importantly, to become a Licensed Insolvency Trustee it take years of higher education and a stringent multi-year examination process.
Don’t let your debts suck your life away. Be debt free and see a professional licensed to help you!