Beware unreliable debt-settlement companies
A local financial adviser firm is supporting the province’s plan to crack down on debt-settlement companies.
The province is looking to impose new regulations in an attempt to “protect consumers from exaggerated claims and abusive practices.”
There are more than 20 unlicensed debt-settlement companies — which offer to reduce debt by sometimes as much as 75% — in the province.
“There is evidence of harmful practices used by some debt-settlement companies and that is why our government is taking steps to protect consumers,” Community Services Minister Margarett Best said in a statement.
The Ontario Association of Credit Counselling Services receives more than 100 complaints monthly.
“We want to put a stop to abusive practices in the marketplace. Consumers should know their rights before they sign contracts and they should not make payments until they see results,” said Best.
The province plans to introduce regulations that would ban the companies from charging fees up front, limit the fees consumers are charged, require clear contracts with a 10-day cooling-off period and prohibit misleading advertising.
Spokesperson Bryan Leblanc said the ministry plans to move forward with this following a public-consultation period ending Feb. 25.
“We will be dealing with this expeditiously, as quickly as possible,” said Leblanc.
Doug Jones, an Orillia and region trustee with BDO Canada, said debt-settlement companies will still be allowed to exist, but cannot collect fees until the debt is negotiated and a service is performed.
“When you introduce that legislation, they’re out of business,” said Jones, who noted many currently take fees and “may or may not solve the problem” because major financial institutions won’t deal with the companies.
“Some creditors sue immediately if they get a notice from a debt-settlement company,” said Leblanc.
Jones said new rules — which have already been implemented in Alberta, Manitoba and Nova Scotia over the past couple of years — will put “unscrupulous” operations out of business.
“You see them advertised all the time,” said Jones, who noted trustees are licensed to utilize federal law to help people restructure debt.
An unregulated industry, any business can call itself a debt-settlement company, noted Jones. He said they typically advise clients not to contact or pay creditors, collect fees and attempt to negotiate a reduced settlement.
Since many financial institutions won’t deal with those companies, the client may end up with a destroyed credit rating and face a lawsuit.
“We are seeing people coming to us who have been paying some of these companies in excess of a year,” Jones said, noting one individual paid more than $6,000 and was on the verge of having wages garnished.
The Financial Consumer Agency of Canada warned the public last January that if a debt reduction, settlement, relief or negotiation deal seems too good to be true, it probably is.