Debt Counsellors Feel Heat
Complaints from Ontario residents regarding the prolific advertising of debt settlement services where there is no assurance of success, no assured protection from creditors, and where fees are charged regardless of success led to the Ontario Ministry of Consumer Services issuing a call in January 2013 for public comment on its Proposal for Improving Consumer Protection in respect of Debt Settlement Services.
These debt settlement plans usually call for monthly payments into an account from which a settlement can be offered to creditors often years down the road - to creditors whose claims are growing with interest, who may not be willing to deal with these operators, and who may even decide to sue.
If implemented in Ontario, it is possible that all societies, non-profit credit counsellors, and for-profits that offer debt settlement services to Ontario consumers will face the following:
- No up-front fees. In fact, no fees at all until a written settlement officer is accepted in writing;
- The maximum fee for settling debts might be 10% of the debt settled. The maximum fee for repayment of a debt over time might be one payment plus 15% of each monthly payment;
- Clear and complete written disclosure, including disclosure of the consumers' rights and risks; and
- Prohibition of misleading advertising and the introduction of standards of conduct.
CAIRP, jontly with the Ontario Association of Insolvency and Restructuring Professionals, points out in its February 2013 reply that non-profit credit counselling societies receive a further fee (referred to as "donations") from the very creditors they represent - some as high as 22% of every dollar collected, and that these "donations" should be included in the regulated maximum fee they will be permitted to charge.
There is other provincial legislation protecting consumers from these practices. Alberta has the Fair Trading Act and the Collection and Debt Repayment Practices Regulations. Manitoba has theirs in its Consumer Protection Act.
Every province should have similar legislation or they will continue to attact and encourage undesirable debt settlement practices.
Just another solid reason to see a Licensed Insolvency Trusee for fair and honest advice.