Buried by Debt?

Facing a Tidal Wave of Debt?

Increasing household debt no longer offset by lower interest rates – PBO

The Office of the Parliamentary Budget Officer has released a new report titled: Household Indebtedness and Financial Vulnerability – Recent Developments and Outlook.

The report focuses on DSR – debt service ration.  This is the capacity of households to service their debt.

  • The DSR remained relatively stable around 14.0 per cent from early 2009 through the first half of 2015. Even though household debt increased from 158 per cent of disposable income to 170 per cent over this period, lower borrowing rates offset the impact of this additional debt on total obligated payments.

  • Since mid-2015, the DSR has edged slightly higher, reaching 14.2 per cent in the first quarter of 2017. At the same time, the interest-only DSR has continued to trend lower as household borrowing rates have stabilised at historically low levels. This suggests that increased household indebtedness is no longer being offset by lower borrowing rates.


The report says that:

Looking ahead, the extent to which households will become more financially vulnerable will ultimately depend on their debt-servicing capacity, and therefore on the evolution of interest rates and household indebtedness. Despite a projected rise in interest rates, we expect household indebtedness to increase due to continued gains in real house prices and elevated levels of consumer confidence.

  • Relative to disposable income, we project household indebtedness to rise from its current level of 174 per cent to reach and then stabilise around 180 per cent of disposable income by the end of 2018.

The report projects higher levels for DSR over the medium term.

You can read the summary notes here, or download the full report here.

OSB Publishes Report

Review of Licensed Insolvency Trustee business practices in relation to administration of consumer insolvencies

On April 28, 2017, the Office of the Superintendent of Bankruptcy (OSB), released its report of its investigation into business practices between debt advisors and Licensed Insolvency Trustees, (“LITs).

The OSB was becoming increasingly concerned about LIT’s relationships with debt settlement companies and the influence they may have had over the Trustees independence and objectivity in assessing the financial situation of the debtor and in administering consumer insolvencies, in particular consumer proposals.  The review likely came about as a result of the debt settlement companies insisting on discount clauses in the consumer proposal.  That is the debtor would pay less than the face value of the proposal if it was paid out early.  What was not being said was that the debtor would borrow the funds from the debt settlement company (or some related entity) at a high interest rate under some appearance of credit rebuilding.

The aim of the OSB’s evaluation was to ensure that the integrity of the insolvency process was being maintained and to recognize, as well as analyze, possible threats related to the honesty of some elements of the consumer bankruptcy procedure including the assessment of the debtor and counselling.

Some of the findings are as follows:

Of all consumer proposals filed in 2016, the debtor paid for financial advice in 17% (9,300) of the cases before being directed to an LIT.

  • That is almost 10,000 times where a debtor could have come to see an LIT for free. That is 10,000 times a debtor paid for advice that they didn’t have to pay for.  And who knows if they received the right advice.  

Of the cases reviewed, the fees paid by consumer debtor to the debt consultant averaged approximately $2,400 and reached as high as $4,200.

  • That is over $23 Million Dollars that could have been paid to creditors. That is $23 Million Dollars in referral fees that debtors didn’t have to pay.   They paid a fee to an unqualified debt consultant company to refer them to an LIT where all they would have to do is go on the internet and contact us directly for free. Consumers paid millions of dollars more than they needed to and creditors may have received less than they were otherwise entitled to.

Consumer borrowers usually had between two to four conferences with the debt management companies prior to being referred to an LIT and paid for that service. In contrast, they typically only met with the LIT once and sometimes for as little as five minutes.

  • So how could the debtor be receiving the proper professional advice about their situation.

The LIT relied upon the debt settlement companies to do all the work relative to gathering, evaluating as well as confirming the borrower’s information, and reviewing and recommending on the bankruptcy alternatives.

  • There shouldn’t be an issue with receiving information from third parties, LITs receive information from third parties all the time. But there is a real issue with unqualified and untrained debt consultants handing out insolvency advice without the requisite training. 

In some instances, due diligence by the LIT’s administrative staff occurred only after the proposal was filed with the OSB.

  • Performing due diligence after the filing in itself is not unusual, but in the cases of a proposal, the LIT must exercise more due diligence than perhaps in a bankruptcy as the LIT is recommending to creditors to accept the proposal. The LIT is using its professional judgment to make a recommendation.  How can you do that if you haven’t done proper due diligence.

In situations where the LIT had a regular relationship with the debt settlement companies, all facets of the procedure before declaring were normally executed at the offices of the debt management companies.

  • The LIT should be meeting people in their office. They need to show the debtor their independence and objectivity.

Other observations

What is not highlighted in this report is the number of bankruptcies that may have occurred where the debtor also paid a referral fee to a debt consultant/credit counsellor.  As far as we know, the OSB has not looked into that.

The other issue to note is that LITs are under strict advertising rules.  Whereas any one else in the debt consultant/credit counsellor world has no such restrictions. Slick advertising is costing consumers money they don’t have and that they don’t need to pay.

The entire OSB report can be found here.

A closer look at March 2017 insolvency statistics

Consumer insolvencies in BC increased overall in March 2017 by a whopping 26.3 percent from February 2017.  Consumer proposals increased 18.6 percent while bankruptcies increased 37.4 percent.

The proportion of proposals in consumer insolvencies in BC accounted for 55.64 percent during March 2017 while they accounted for 52.19 percent for all insolvencies across Canada for the same period.

Consumer insolvencies in BC for the 12-month period ending March, 2017, decreased by 6.9 percent compared with the 12-month period ending March 2016. Consumer bankruptcies decreased by 7.8 percent, while consumer proposals decreased by 6.2 percent. Consumer insolvencies in all of Canada are up by 2.2 percent over the same period last year.

The proportion of proposals in consumer insolvencies in BC was 57.0 percent during the 12-month period ending March 2017, up from 52.5 percent during the 12-month period ending March 2016. It indicates the popularity of consumer proposals as a way for consumers to deal with their debt and with dealing with a Licensed Insolvency Trustee over other unregulated service providers.

The insolvency statistics indicate the increasing benefits of the protections provided to consumers under the Bankruptcy and insolvency Act over other non-legislated options, whether that is a consumer proposal or a bankruptcy.   It also indicates that consumers are seeing the benefits of seeking the professional advice of a Licensed Insolvency Trustee rather than those of other non regulated service providers.

If you would like to know exact details of how a consumer proposal or a bankruptcy would benefit you in dealing with debt, call us at (604) 605-3335 to schedule a free consultation.

Call us.  Its not too late.

See this article for other Canadian insolvency stats for March 2017.

March 2017 insolvencies increase almost 20% compared to last month

The latest numbers from the office of the Superintendent of Bankruptcy Canada shows a 19.2 percent increase in the total number of insolvencies in Canada in March 2017 compared to the previous month.   Bankruptcies increased 25.6 percent and proposals increased by 13.7 percent.

Compared to a year earlier, insolvencies are down 1.2 percent.

Other stats: For the 12 month period ending March 31, 2017, the total number of insolvencies increased by 1.9 percent compared with the 12-month period ending March 31, 2016.

You can read the summary and full report.

FCAC warns Home Equity Lines of Credit may be putting Canadians may be at risk

The Financial Consumer Agency of Canada is warning that the growth of Home Equity Lines of Credit in Canada may be putting some consumers at risk.

In a news release issued today, the FCAC says:

The report, titled Home Equity Lines of Credit: Market Trends and Consumer Issues, centers on the use of HELOCs by consumers, on how banks offer them and the benefits and risks of borrowing against home equity.

The report also reveals that lenders are increasingly offering readvanceable mortgages, which combine term mortgages with HELOCs and other credit products, to customers.

Readvanceable mortgages are complex. The report found that many consumers would benefit from more and clearer information about how readvanceable mortgages work, the applicable fees, terms and conditions, and the risks potentially involved. Providing consumers with more resources would put them in a position to make informed decisions about whether to finance their home purchases with readvanceable mortgages.

Among other things, the report flags a number of issues:

  • Banks reported to FCAC that a readvanceable mortgage is now the default option offered to credit worthy mortgage customers with down payments of at least 20 percent.
  • Of the approximate 3 million HELOC accounts, 80 percent were held under readvanceable mortgages in 2016.
  • The number of households that have a HELOC and a mortgage secured against their home has increased by nearly 40 percent since 2011.
  • 40 percent of consumers do not make regular payments toward their HELOC principal.
  • 25 percent of consumers pay only the interest or make the minimum payment.
  • Most consumers do not repay their HELOC in full until they sell their home.

You can read the press release here.  The full report is here.

Canada’s GDP up in first quarter of 2017

Statistics Canada has released Canada’s latest economic data, and it shows a solid increase in GDP in the first quarter.  The GDP is up by 3.7 percent between January and March 2017.

The economic data is here.   You can also see the economic indicators by province, listed here.

The latest numbers have prompted some speculation that the healthy growth could trigger a raise by the Bank of Canada.  Global news covered the story with the headline “New GDP numbers could be bad news for Canadians with debt” is here.  That story .

Does debt disappear over time?

An article by Erica Alini from Global News poses the question: Do Unpaid Debts Every Disappear?

The article explores things like statute of limitation on unsecured debt (it’s different in different provinces), CRA debt, and  how if you die owning money to CRA it can stake a claim on your estate.

The full article is here.

Borrowing for a home reno? Read this.

Global’s online national reporter

The article, titled Home renovations: The 4 big risks of borrowing against your house to pay for it explores the possible pitfalls of  HELOC (home equity line of credit). HELOCs are Canadians’ preferred way of funding home renos.

Read the article here.