OSB publishes position paper

Reasonable and Fair Provisions in Consumer Proposals

The Office of the Superintendent of Bankruptcy “OSB” has recently published a position paper “Reasonable and Fair Provisions in Consumer Proposals” regarding the practice of including discount clauses in consumer proposals and explains its intended approach to supervising estates that include these clauses.

There has been a recent trend by some debt consultants/credit counsellors/debt advisors who consult with debtors prior to seeing a Trustee, to have the Trustee insert a discount clause in a consumer proposal for early payment when the debtor files a consumer proposal.   The paper sets out an example of a discount clause:

” At any time during the term of this proposal, should the debtor be able to arrange funding and pay to the administrator an amount equal to the balance owing on the proposal less 25%, this consumer proposal shall be deemed to be complete and the proponent shall be entitled to a Certificate of Full Performance.”

This is in stark contrast to allowing the debtor to prepay the proposal early due to increased income or the like but still paying the full amount without any discount.

Discount clauses are promoted in the context of “financial advice” to facilitate the issuance of new, high-interest loans once a proposal is accepted in the form of credit repair services.

The OSB has determined “that the inclusion of discount clauses in consumer proposals represents a risk to the integrity of the administration of the insolvency process, and that discount clauses support outcomes for debtors and creditors that are inconsistent with what would be considered reasonable and fair when the objectives and purpose of the BIA are considered.”  It has also stated that LITs could be the subject of further scrutiny by the OSB should they continue to promote proposals with these type of clauses.

To read the full article click here.