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Province regulating debt settlement companies

By: Sudbury Northern Life Staff

 | Jan 04, 2013 - 10:24 AM |

Ontario is joining other provinces like Alberta, Manitoba and Nova Scotia in introducing regulations to crack down on debt settlement companies, said the province in a news release.

The plan is to regulate debt settlement companies to protect consumers from exaggerated claims and abusive practices. Through new regulations, the government will ban debt settlement companies from charging up-front fees, limit the amount of fees consumers are charged, require clear, transparent contracts and implement a 10-day cooling-off period.

The government has posted regulatory proposals for public comment at www.ontariocanada.com.

 

“I applaud the Government of Ontario for their efforts to help consumers who use debt settlement services to get their finances in order," said Laurie Campbell, CEO, Credit Canada Debt Solutions. "Banning high up-front fees, limiting fees and giving consumers clear information upfront is a strong step forward for indebted families in Ontario.”

Two examples are provided by the Ministry of Consumer Services.

In the first example, an Ontario consumer approached a debt settlement company to help negotiate an affordable monthly payment program to settle debts of about $11,000 with his creditors. The debt settlement company said it negotiated a settlement of about $4,700 and charged the consumer a fee of about $2,500.

The company assured the consumer that all of his creditors had accepted the settlement offer.

One company, however, had not accepted the settlement offer and the consumer was served with court papers.

The consumer contacted the debt settlement company for instructions on what to do next and was provided with a number of forms to defend against the court action.

The debt settlement company then sent the consumer an e-mail informing him they had received his cancellation notice. The consumer had never sent the debt settlement company a cancellation notice and further calls and messages to the company were not returned.

The consumer’s credit score was significantly damaged and the consumer approached a not-for-profit company for help.

Another consumer with total debts of $7,500 paid a total of $1,600 in fees to a debt settlement company. The debt settlement company required monthly payments of $200 to be used towards paying off her debts.

From this amount, the company kept $150 in fees each month and asked the consumer to set up a separate account from which she would pay her creditors with the remaining $50. The consumer continued to receive letters from her creditors demanding payment and charging interest on the outstanding balance.

Frustrated and upset, the consumer felt like she was adding more debt rather than getting help to eliminate her debt situation. The consumer subsequently approached a not-for-profit company for help.

“The Ontario Government is taking forceful and decisive action to protect Ontarians," said Henrietta Ross, CEO and executive director, Ontario Association of Credit Counselling Services. "These proposed consumer protection measures will ensure that debt settlement companies in Ontario operate with legitimate business practices. Consumers seeking help to better manage their debt loads will know their rights are protected. The Ontario Association of Credit Counselling Services stands in support of this important initiative."

There are more than 20 debt settlement companies operating in Ontario. The Ontario Association of Credit Counselling Services receives more than 100 complaints about debt settlement companies a month.

The average consumer debt in Ontario is up to $25,447 in the second quarter of 2012, compared to $24,721 in the second quarter of 2011. For every dollar Canadians earn, they have $1.64 in unsecured debt, according to Statistics Canada.

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