As you may recall in previous newsletters, we reported about the Office of the Superintendent of Bankruptcy’s (OSB) report into what is perceived to be abuses by Credit Counsellors/Debt Advisors and business arrangements with Licensed Insolvency Trustees (LIT)s. In its 2017 newsletter, the OSB indicated that would be making legislative changes to address its concerns.
On October 16, 2017, the OSB released its draft Directive on counselling. This is the first of its overall plan and it is seeking input from stakeholders by November 24, 2017. In most consumer insolvencies, there are two mandatory counselling sessions required for all debtors.
Some of the changes that are proposed are:
- The LIT shall fulfill their obligation to provide insolvency counselling personally, or by designating, on a specific insolvency estate, another LIT or an individual who has been registered against the LIT’s license.
- Counselling is to be held only at the LIT’s office. The location is to be an authorized office of the LIT and not the office of a third party who is not licensed by the OSB. There are some exceptions to this but only with the approval of the OSB.
- Counsellors must be registered against the LIT’s license.
- The counsellor must meet certain education requirements in order to be registered, have adequate professional liability insurance and must take annual professional development.
Any individual is ineligible to be registered as a counselor if:
- They are in a real, potential or perceived conflict of interest;
- They are engaged in or involved with the provision of financing and lending services to individual bankrupts or consumer debtors including, but not limited to, credit rebuilding services, loans in various forms, and insurance;
- They are employed by, associated with or acting as a Third-Party Debt Advisor; (A Third Party Debt Advisor is defined as an individual or organization who, in return for direct or indirect consideration, acts as an advisor to a debtor or an intermediary between debtors and LITs. This includes those who derive consideration or a benefit from selling insolvent debtors a range of services before, during, or after an insolvency filing under the BIA. Such services may include, but are not limited to: financial evaluations, representation, restructuring services, credit rebuilding, loans in various forms, or insurance); or,
- They are employed by, associated with or acting as a Referral Arranger. (A Referral Arranger is defined as an individual or organization in the debt advisory industry (whether for-profit or not-for-profit) that participates in a formal or informal referral arrangement with an individual LIT or corporate LIT).
The LIT is to meet with all debtors to complete the Insolvency Counselling and Designated Form which appears to mean that this task cannot be delegated to an employee;
There are some points to consider:
- Will LIT’s designate non-employee counsellors and attest to their qualifications?
- Will this lead to all counselling only being done by the LIT firm and not any independent counsellors?
- Will these independent counsellors be travelling to the LITs office to perform the counselling or will LITs be registering the counselor’s office as an authorized location?
- Will the LIT add the counsellor to their professional negligence insurance and/or will the insurer even allow it?
- Will the credit counselling/debt advisory industry discontinue its practices of referring individuals to certain LITs or will that somehow change?
It is clear that the OSB is making the LIT more responsible for the counselling and is taking steps to protect debtors from paying unnecessary fees. What is not clear is that any Third Party Debt Advisor or Credit Counsellor could still refer files to an LIT but not take the counselling in return. And there is nothing that precludes them from independently contacting the debtor and selling their other services for a fee.
However, these debtors need a place to go to file their consumer proposal and/or bankruptcy. The unfortunate part of it that there are many debt advisory firms out there, whether they are for profits and not for profits, that have slick and/or misleading advertising campaigns or websites that draw the debtor to them first before seeing an LIT.
Will these steps that the OSB is suggesting level the playing field and help inform debtors that LITs are the go to professionals when dealing with debt, who are Licensed by the Federal Government and have the necessary training associated for dealing with debt issues.
Only time will tell.
Boale, Wood & Company Ltd. Is a full service insolvency boutique that assists consumers and businesses in dealing with debt.
Call us. It’s not too late. (604) 605-3335.