The Ontario government announced last week that it will be instituting measures to curb the abusive practices of “debt settlement” companies. This comes in response to repeated complaints from debt-laden consumers. Alberta, Nova Scotia and Manitoba have already taken similar steps.
The following is a summary of the steps being taken by the Ontario government:
- prohibit advance payment of fees for debt settlement services,
- limit fees for debt settlement services,
- ensure set aside funds are under consumer control,
- require clear disclosure of all key contract terms and a 10 day cooling off right,
- prohibit misleading advertising,
- establish standards of conduct, and
- provide consumer remedies and enforcement.
It’s important to understand what a “debt settlement” company is and the reason for the controversy.
Debt settlement is where you negotiate with your creditors to pay less than the full amount of the debt. A debt settlement company offers to do the negotiation for you, for a fee of course. The concerns stem from the amount and timing of fees that are charged, as well as the apparent lack of success. Because most people don’t have a suitcase full of cash lying around, the common scenario is that the person is advised to stop paying his or her debts, ignore the creditors and start saving up money with which the settlement company can negotiate. Of course, the fees are paid first. Because you aren’t paying your debts, the collection calls start.
I have spoken with numerous people who have paid thousands of dollars in fees, only to be facing a wage garnishment. Most often, the end result is that they file a consumer proposal or personal bankruptcy to get proper legal protection.
I appreciate that people are looking for help when they don’t know what to do about their debt. Our role is simply to assess your circumstances and provide information about your different options so that you can make the best choice possible. If you are struggling with debt, a licensed insolvency trustee is the best person to talk to. We provide a free consultation, are licensed by the federal government and will always talk to you about all your options, not just sell you one.