Ontario Announces Plan to Regulate Debt Settlement Companies

On January 4, 2013, the Ontario Minister of Consumer Services, Margaret Best, announced that the Ontario government plans to regulate Debt Settlement companies. A link to the news release is at the end of this article.

Debt Settlement companies claim to settle an individual’s debts for less than the full amount owing. The government is concerned with the advertising done by these companies, which in many cases is misleading for consumers. Many Debt Settlement companies charge up-front fees, even if they are not able to settle the debts.  In deciding to regulate these companies, the government is addressing a growing concern with their practices.

Most Trustees have seen people who have dealt with these companies and received less than satisfactory results.  The government noted that the Ontario Association of Credit Counseling Services receives over 100 complaints about Debt Settlement companies a month. The United States legislated against these practices several years ago after billions of dollars were scammed from consumers south of the border. We now see these kinds of players in Canada.  As noted in the press release, “Ontario is joining other provinces like Alberta, Manitoba and Nova Scotia, which have introduced regulations to crack down on Debt Settlement Companies. “

The proposed new rules are designed to:

  • prevent Debt Settlement companies from charging up-front fees;
  • limit the amount they can charge;
  • provided clear and transparent contracts;
  • introduce a 10-day cooling off period that will allow consumers to get out of the contract; and,
  • include rules to prohibit the type of misleading advertising conducted by many Debt Settlement firms.

Most Debt Settlement companies operate by collecting monthly payments from individuals over time, in many cases for up to 3 years.  Once the company has collected enough money to settle the debts, they approach the creditors with a settlement offer.  Unfortunately for most people the creditors may not wait the length of time it takes to save these funds, and may not work with these Debt Settlement companies. For the individuals using these companies, most have paid thousands of dollars but have not had their debts settled. The Debt Settlement companies kept most (if not all) of the money that was paid to them as fees. This is one of the practices that the government is trying to stop with their new rules.

One of the biggest problems with trying to settle your debts on an informal basis, either on your own or with Debt Settlement companies, is that you do not get legal protection from your creditors. You also need all your creditors to accept the informal settlement offer for it to work. Creditors must work with licensed Trustees in Bankruptcy, and know that by doing so are working with highly-trained professionals who are governed by strict regulations and a rigid code of ethics.

And unlike an informal settlement from a Debt Settlement company, with a Consumer Proposal, you get complete legal protection from your creditors.  It stops legal actions and garnishees that may have started and prevents legal actions from starting.  When a Consumer Proposal is filed, debtors and creditors must work with a licensed Trustee in Bankruptcy who is a highly trained professional, has a rigid code of ethics that must be followed, and is governed by strict federal government laws and regulations.  Best of all, you do not need all of your creditors to accept a Consumer Proposal; once the required majority has accepted it, the Proposal must be accepted by all of your creditors.

Here’s the link to government news release.