Bankruptcy & Insolvency

Changes to Collection and Debt Services Act long overdue

Ontario’s new Collection and Debt Services Act is a long-overdue improvement and will provide consumers with more rights, Toronto lawyer Anton Katz tells Lawyers Weekly.

With record levels of personal debt in Canada, the article says it’s not surprising many consumers are having difficulty paying their debt down.

“Combine that with a perceived low level of financial literacy, and many consumers have been left vulnerable to the practices of unscrupulous collection agencies,” the legal publication states. The Collection and Debt Services Act, which came into force July 1, attempts to provide consumers with increased options to avoid that fate.

Katz, a Toronto based barrister and solicitor, tells the legal publication, “[Consumers] certainly have a bigger bundle of rights than they had in the past.”

For example, he notes consumers now have a 10-day “cooling off” period where they have the right to cancel a contract they’ve signed within the first 10 days if they believe the service isn’t right for them.

Any debt settlement or credit counselling contract will now have a plain language information sheet informing them that their credit rating is used by a variety of people and businesses, including lenders and creditors, insurance companies, landlords, and potential employers, the publication reports.

Katz says that previously, collection agencies benefitted from collecting a large sum of money up front, but hurt the debtor, who would possibly default on their payment or even end up in bankruptcy.

The new law would change that, Lawyers Weekly reports, “allowing for clearly specified payment options that include a one-time fee of no more than $50 up front, a proposed schedule of payments in respect of each debt, or a one-time payment that is less than the amount of the debt.

“If a schedule of payments is chosen, the maximum payment or security for payment that the collection agency may accept for their services is capped at 15 per cent per payment. If a one-time payment is chosen, the maximum payment for the collection agency is capped at 10 per cent of the amount of each debt,” it continues.

Some collection agencies have acted aggressively and overzealously with unscrupulous practices including repetitive phone calling, as well as false suggestions that the people calling were connected with the government, says Katz.

The new act eliminates the upper hand of some of the more unscrupulous operators but there are concerns that even under the new regulations a possible conflict of interest could still exist for collection agencies by virtue of their being able to also offer debt settlement services, the legal publication reports.

“[Maybe] you’ve got a circumstance where the collection agency will act for a creditor, and in acting for the creditor, the creditor will ask them to contact a consumer and collect debt. Say the creditor is owed $300, and they call the consumer to negotiate the debt. Speaking with the consumer and pulling their credit report, they learn that this consumer might owe $10,000 to a number of other creditors,” Katz says in the article.

In that circumstance, would the collector still be as loyal to that creditor if they could only make a small amount on collecting the $300, but could make a larger sum working for the debtor, negotiating a settlement on the other $10,000, he asks in the article.

Even with the added protection of the new law, Ontario consumers can’t afford to let their guard down. As always, there is no substitute for due diligence.

“It doesn’t relieve them from the obligation to be careful and to read agreements very carefully, and other concepts of caveat emptor,” Katz says.

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