The advantages of consumer proposals with a Trustee can save you from debt settlement companies. Here’s how. Unlike a trustee in bankruptcy, debt settlement
companies have long been a hot button issue and as a result we’ve posted several blogs on the subject:
Thank you for reading our Brandon's Blog. Check out our AI insolvency bot on this page and don't forget to subscribe!
- Beware of Debt Settlement Companies
- The Latest on Debt Settlement Companies
- Debt Settlement Companies Finally Take to Task in Ontario
The advantages of consumer proposals are in the news again because as of today, July 1, 2015, the Ontario government has changed the law regulating debt settlement services in Ontario under the Ontario Collection and Debt Settlement Services Act, R.S.O. 1990, CHAPTER C.14 and its Regulations (the “Act”), which replaces the Collection Agencies Act. There have been laws in place regulating debt settlement companies, but they haven’t been enforced very well.
According to Nima Taheri, CEO, Markham, Ontario-based Compliance First Financial, “Today, more than fifty percent of the firms offering debt settlement services to Ontario residents do not satisfy Ontario’s licensing requirements, and, therefore, are operating illegally in Ontario as an unlicensed “collection agency”, and in some cases the Ontario Government is aware of the existence of these firms and for whatever reason, no action of any consequence has been taken against these firms.”
Effective today under the Act:
- Companies providing debt settlement services in Ontario must be licensed under the Act, with a few exceptions:
- Not-for-profit credit counselling agencies acting as charitable foundations (as defined by the Canada Income Tax Act);
- Bankruptcy trustees (who are already licensed by the federal government); and
- Lawyers are excluded from these licensing requirements.
- Fees are capped to a maximum amount of 15% of payments or 10% for a lump sum plus a $50 set-up charge.
- Fees cannot be charged until payments have been made to the creditor(s).
- Up-front fees are prohibited.
- Any firm licensed as a collection agency in Ontario (a requirement for both collection agencies and debt settlement service providers) will be legally entitled to provide both collection agency services and debt settlement services which in my view is a huge conflict of interest.
Even with this new Act, the advantages of consumer proposals outweigh going to debt settlement companies. Will debt settlement companies really provide a valuable service to consumers or continue to prey on them? According to the Canadian Bankers Association only 10% of offers received from debt settlement companies are accepted and it’s estimated that only 3% are successfully completed.
This is hardly surprising since debt settlement companies are not qualified to provide advice on dealing with debt. They have no training or education requirements and they are not and should not be considered financial services professionals. Starting July 1, the person calling you up from the collection agency to hound you on behalf of one of their clients who you owe money to, will have a new script. When you tell them that you cannot afford to pay, they will then ask you for information on all your debts, and then try to sell you the services offered by debt settlement companies.
This will be a huge conflict of interest. If they can’t collect the money for one client, they will try to sell you services to attempt to deal with all of your debts. But they still lack the specific training to properly counsel you. They still will not be able to meet or exceed the advantages of consumer proposals. Rather, they will be figuring out how to counsel you to pay money that you probably can’t afford, because their commission revenue goes up the more they can get you to pay! Hence, the conflict of interest.
One of the advantages of consumer proposals is that bankruptcy trustees are financial services professionals who had to successfully complete rigorous education requirements and pass an RCMP background check in order to be federally regulated and licensed. A trustee in bankruptcy is also subject to a strict code of ethics. Trustees’ fees are regulated by the Federal Government and the Court and are usually much less than the debt settlement companies who make unsubstantiated claims.
Another one of the advantages of consumer proposals is a high probability of success. Consumer proposals filed by a trustee have an excellent chance of being accepted by creditors. The consumer proposals our office files have experience virtually 100% acceptance by creditors. We know of other trustees who say their success rate with consumer proposals is in the high 90% range.
The reason for the advantages of consumer proposals is because a licensed trustee understands the behaviour of your creditors, is obligated to review all options with you and explain why a consumer proposal is a better option than other ones available, including personal bankruptcy. A trustee can advise you properly on how to reach a mutually satisfactory compromise on your debt that you can actually complete successfully, taking your family income and situation into consideration.
The advantages of consumer proposals with a trustee versus debt settlement companies are simple; a trained, educated, licensed financial services professional delivers results.
Contact Ira Smith Trustee & Receiver Inc. for sound, professional advice and a solid financial plan for Starting Over, Starting Now. Happy Canada Day holiday to all of you.
