Pay debt, not fees
Laurie Campbell sees it all the time.
As the CEO of Credit Canada Debt Solutions Inc., people arrive at her office deeply in debt with their creditors beating down their door, desperate for help. By the time they get to her, they've already paid thousands of dollars of upfront fees to a company or credit counselling provider hired to provide debt settlement services, but are no closer to paying off their bills than when they started.
"What happens is the first five, six, eight, sometimes 10 months are fees," says Campbell. "People are putting money aside every month and that's going to upfront fees for a service not even being provided."
Thankfully, on November 27, 2013, the Ontario Government passed the Stronger Protection for Ontario Consumers Act, putting to an end the use of upfront fees by credit counselling services, limiting the amount any fees for service can come to and prohibiting payment of those fees before debt management services are rendered.
"Six or eight months into the credit counsellor taking their fees, the creditors are not being paid, if the creditor is not being paid, the individual is being sued and their wages are being garnished," says Campbell. "This [legislation] will stop this kind of activity from happening because there will be an assurance that the creditors will be paid and the debt settlement will be arranged."
The latest in a long line
Ontario is just the latest in a long line of Canadian provinces to pass more comprehensive consumer protection legislation with more provinces predicted to join them.
"Because Ontario is often looked to in finding out where the country is at on the legislation of certain issues, I do believe we will be looking toward seeing other provinces follow suit over the next year or two," says Campbell.
So far, Alberta, Manitoba and Nova Scotia have all passed similar laws, with Alberta's Debtor's Assistance Act and Regulation being the closest to the Ontario version. In addition to banning upfront fees and limiting fees in general, the Ontario law requires clear, transparent and detailed contracts that include information about the effect of the contract on the consumer's credit rating, credit counsellors to disclose information to the consumer about how their organization is funded and establishing a 10-day cooling-off period that provides consumers with more time to consider their agreements with these companies.
"I really like the way this legislation came together because I think it covers all angles to ensure that debt settlement companies don't try to look for a backdoor to try and continue service without performing the duties they are supposed to," assesses Campbell.
She also points out you shouldn't even need a debt settlement company to act as an intermediary for your settlement arrangement because any bankruptcy trustee can create a consumer proposal, which costs $750 and, if it's accepted by your creditors, another $750 to proceed.
"If you're in debt, don't wait until it gets really bad," she says. "Talk about it with your bank or reach out to a not-for-profit credit counselling service."
Aaron Broverman is a freelance writer in Toronto