“Hold your breath and wait for a discounted settlement.” This is how Mark Ball, President of the Receivable Management Association of Canada (RMA), describes the approach taken by debt settlement services (DSSes). Mr. Ball and RMA members were the catalysts in bringing regulation of DSSes to Ontario.
According to Mr. Ball, DSSes aggressively market to consumers across the country with promises to help eliminate their unsecured debts at a discount. Seeing the impact that the DSSes were having on consumers, Mr. Ball and other RMA members felt obligated to share their observations with regulators in Ontario.
After the first discussion between RMA and Ontario’s Ministry of Consumer Services in August of 2012, the Ministry quickly involved other stake holders including the Canadian Bankers Association, professional associations for insolvency practitioners and credit counsellors, collection agencies, large credit granters, and DSSes. At lightning speed for a legislative process, a bill was drafted and passed in the Ontario Legislature, receiving Royal Assent on December 12, 2013. Bill 55 – the Strong Protection for Ontario Consumers Act, 2013 amended the Ontario Collection Agencies Act to become the Collection and Debt Settlement Services Act (http://www.e-laws.gov.on.ca/html/statutes/english/elaws_statutes_90c14_e.htm.)
The process began with a “Proposals for Public Comment” document issued by the Ministry January 4th, 2013 (http://www.ontariocanada.com/registry/showAttachment.do?postingId=11742&attachmentId=18018.) In this document, the government describes what it had learned about how DSSes operate and the negative impact they are having on consumers. “A debt settlement service operator is typically paid to negotiate with creditors to settle a consumer’s debts on more favourable terms, in particular for a reduced amount. Under a typical debt settlement plan, the consumer makes monthly payments into an account until there is enough money to make a settlement offer to creditors and pay fees to the debt settlement company. “ Describing its concerns about this process, the government states:
Consumers who choose to use debt settlement services often find that their situation worsened if a settlement is not reached . This might happen if a creditor is not willing to wait until the debtor has amassed sufficient funds t o negotiate, or is unwilling to settle for a reduced amount proposed by the debt settlement service . For example :
· They may still have to pay fees to the debt settlement service despite not obtaining a settlement;
· Their debts have grown as a result of no payments being made while interest and other charges accumulated;
· Not making payments to creditors has also worsened their credit report, with a wide variety of potential negative outcomes ; and
· They may be sued by creditors.
The legislation resulting from the consultation process regulates DSSes by prescribing prohibited and required representations, fee limits, mandatory agreement contents, disclosure statements, prohibited practices etc. While the act is now law, regulations setting out specifics are still being developed with stakeholder input. The initial stakeholder meeting was held on February 4th, 2014 in Toronto and attended by DSSes, RMA, collection agencies, creditors and other interested parties. There the government invited comment on specifics proposed for the regulations including,
· limiting fees to 10% of the original debt,
· no fees being charged prior to the debt being settled and the creditors being paid, and
· information and warnings required to be in the agreement about impact on credit ratings, risk of being sued, cancellation rights, the date by which creditors will be approached, etc.
The feedback received at this initial meeting will be incorporated into a consultation paper that will be posted on the government’s regulatory registry at www.ontariocanada.com/registry. The timeframe identified for completing this consultation is “this winter” with a proposed three-month transition period for the regulations to come in force once they are filed.
Our office has had direct experience with DSSes and the negative impact they can have on consumers. We welcome this new regulatory scheme. From a creditor point of view, these debt settlement programs are easily defeated by creditors requiring financial disclosure before offering a discounted settlement and enforcing claims by legal action where a consumer can pay but refuses to. It is consumers who will benefit from the mandatory disclosure, fee limits, and other protections that will soon be in force in Ontario.
Section 2 of the Ontario Collection and Debt Settlement Services Act exempts lawyers from its application. It will be incumbent upon Ontario lawyers to regulate themselves to ensure any debt settlement programs they administer are in their clients’ best interests.
Todd Christensen represents Christensen Law Firm -- http://christensenlawfirm.com.