Regulating Debt Settlements in Ontario
(A Review of The Stronger Protection for Ontario Consumers Act, 2013)
A member of our legal team brought a note to my attention regarding the proposed Bill 55 last week. Now, I've been hearing rumblings for a while now about Ontario regulating Debt Settlement, but it appears that the proposed Act that in its second reading may have some very unexpected results.
I'll talk about this note I received later, but right now, let's look at the proposed law change.
Bill 55 And The Proposed Changes
This proposed Act expands on the Collection Agencies Act for Ontario (and proposes to rename it the Collection and Debt Settlement Services Act), inserting a few clauses to deal with debt settlement.
Here is the proposed Act in it's current form: http://www.ontla.on.ca/web/bills/bills_detail.do?locale=en&BillID=2776&detailPage=bills_detail_the_bill
Now I believe that debt settlement should be regulated, and I'm pleasantly optimistic with some of these changes:
þ Debt settlement companies would be required to be registered as an agency or collector under the Collection and Debt Settlement Services Act in order to represent debtors on matters of settlement in exchange for a fee or commission.
þ Debt settlement agreements have a ten day 'cooling off' period that allow a consumer to cancel representation by the agency without penalty, and receive a refund.
While these are good changes, the following issues seem unaddressed, or incomplete to me:
ý The act talks about a maximum fee or commission that can be taken by an agency, but it doesn't actually spell out a maximum amount.
ý There are clauses addressing the consumer's right to a refund on fees up to a year after funds have been paid, without any conditions on whether services were provided. That could mean that a consumer could receive settlement services, and demand a refund after receiving the benefit of the settlement.
ý The Collection Agencies Act, as it stands, contains all sorts of restrictions on agencies and collectors to avoid disclosure of a debt to a third party, in order to protect the consumer's privacy. If this new act is to regulate debt settlement, there should be some phrasing or allowance for disclosure at the debtor's direction or in the Debt Settlement Agreement -- otherwise, how can a collector speak to a creditor or another agency about a debt, or how can an agency be contacted by a collector offering a settlement?
But these are some minor details that can be easily ironed out. Let me get back to the note I received.
Some Unexpected Complications
The note brought to me was written by another paralegal who was concerned about the ramification of this changed Act, which would prevent paralegals who are defending debtors in a civil claim from being able to properly negotiate on behalf of their client to work out a resolution, especially when a settlement amount is to be distributed to plaintiffs or other creditors, without registration under the Collection Agencies Act and a prior settlement agreement being signed.
This strikes me as a fairly open, but valid interpretation of this new law which would severely hamper paralegals (but not lawyers, as they are exempt under the Collection Agencies Act). But this caused me to think about how this act could affect collection agencies.
Imagine if you will, collector "A" calls the debtor "B" in the matter of an outstanding $1000 owed on a cable bill. Occasionally, a debtor will offer a payment schedule or a lump sum settlement. The question is -- are these arrangements "debt settlement services"? Is this a circumstance where the collector starts "to act for a debtor in arrangements or negotiations with the debtor's creditors"? If so, it opens up a number of issues -- a debt settlement agreement would be needed before undertaking payment, and commissions or fees could not be taken until the services have been provided (likely meaning the account is resolved).
Has this been considered by the Legislature, and is this a valid concern for interpretation of the Act? Time will tell...
Changes For The Good?
Here's another possible scenario that could actually bring some control to consumers over their debts and how they are contacted -- imagine this, a debtor is being pursued by multiple agencies representing multiple creditors. If a single agency works cooperatively with the debtor, the debtor could not only pay their account, but choose to enter into an agreement with them, and it's entirely possible the debtor-agency relationship could be turned around so the debtor retains their favoured agency to become an advocate for themselves, to intercede with the other agencies and creditors, assisting the debtor rather than cornering them for a single account.
This means that agencies and collectors could have a lot more interplay with each other rather than just acting as competitors, and it also means that debtors may be able to ultimately choose which agencies they are willing to deal with, and who can take their money and distribute it to their creditors on their behalf.
I think the future just became very interesting for our industry. If anyone else thinks so, or has questions or comments, feel free to make them here, call my office at 226-946-1730, or send your thoughts to the Minister of Consumer Affairs, the Honourable Tracy MacCharles at firstname.lastname@example.org.
Kingston Data and Credit