Tightening of Rules for Debt Settlement Companies

Category: Bankruptcy News

The Ontario government is set to introduce tighter rules surrounding debt settlement companies offering to help consumers reduce their credit card and other debts.  We are all familiar with the ads by now — slick offers to reduce your credit card debt by up to 70% sometimes within a matter of months — for a fee.  With more than 70 complaints a month being received by the Ministry of Consumer Affairs it is clear however than many of these companies are not delivering on their promises.  A crackdown on debt settlement companies is definitely in order.

There are now more than 20 debt settlement companies operating in Ontario, many of whom are relatively new and are branches of larger US debt settlement companies. The Ontario government will join Manitoba, Alberta and Nova Scotia introducing new regulations that 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.

This is great news for consumers, however the regulations could go further.  Websites, TV and radio ads promoting services for these companies can be quite deceiving.  Many suggest they are offering government approved debt settlement programs with wording like “new government program” designed to bail you out of credit card debt or new “national debt settlement program”.

The truth is that the only government regulated debt settlement option is a consumer proposal which is administered through the Bankruptcy and Insolvency Act (Act) in Canada.  A consumer proposal must be administered by a Consumer Proposal Administrator who is usually a Trustee in Bankruptcy.  Fees in a consumer proposal are set by the federal government.  The process is clear and transparent with forms and procedures defined by the Act.  Fees are not charged until you file your proposal and receive protection from your creditors.  As to a cooling off period, most Trustees in Bankruptcy offer a free, no-obligation consultation where they will explain all your debt relief options.

If you find yourself looking for help reducing your debt, contact one of our local trustees today.  They can help.