There is no shortage of collection law articles on the internet -- however, they are often written for consumers in an alarmist tone, and don't deal with some important aspects, like the proper way to pay an agency. Some of these articles are written by debt settlement companies, bankruptcy trustees, or consumer advocacy groups, but rarely will a collection agency step forward and talk about how they operate within the laws of the various provinces.
We are going to look at the laws from the agency's viewpoint, and make suggestions how a consumer can effectively communicate with a collection agency.
In Ontario, collection agencies are primarily governed by the Collection Agencies Act (http://www.e-laws.gov.on.ca/html/statutes/english/elaws_statutes_90c14_e.htm), which outlines the following requirements
Please Note! As of January 1, 2014, the Collection Agencies Act has been renamed the Collection and Debt Settlement Services Act of Ontario to incorporate rules for debt settlement companies. There are some subtle changes to the collection laws, such as requiring a permanent office in the province of Ontario for the agency – an article I’ve written detailing some of the changes can be found here.
General Licensing Requirements & Understanding the Role of the Agency
First and foremost, a collection agency operating in Ontario must be registered in the Province with the Ministry of Consumer Affairs, and carry a surety bond of at least $5000. The agency must operate from a commercial location, and their collection agents must be licensed individually as well.
Collection agents operating in Ontario must be Canadian residents, be licensed by the Ministry (which involves a background check), and have a license number. You can always ask a collection agent what their license number is, or look up their license yourself at the link below.
Most Canadian collection agencies work on a contingency or fee-based service, where the ownership of the debt remains with the creditor. However, there are cases where an agency will purchase a debt from the creditor. Debt purchasers who contact the consumer and make collection attempts must also be registered under the Collection Agencies Act, and operate within these laws. A consumer always has the right to know who owns the debt.
Large creditors may often use more than one collection agency, moving a file after several months from one agency to another to ensure the files are worked thoroughly. While you may work (or not work) with an agency on a debt, and think the matter is closed, you may be contacted by another agency down the road -- keep records so you can work with any new agency brought in to deal with the account.
Law firms who offer collection services in Ontario need not be licensed, as there is an exception to their profession in the Collection Agencies Act -- however, law firms and their staff are held to a code of conduct by the Law Society of Upper Canada, and cannot contravene any federal or provincial laws. Information can be found here: http://www.lsuc.on.ca/with.aspx?id=671
Collection agencies and collection agents can be searched for at the following website to determine if they are registered: http://www.consumerbeware.mgs.gov.on.ca/esearch/search.do?eformsId=0
Collection Notices and Required Information
In Ontario, an initial collection notice must be sent before calls begin after a minimum of six days later. However, the agency may have a last known address that is not the consumer's current location, and Canada Post is not a guaranteed form of delivery. If you are contacted by a collection agent, and you haven't received the initial notice letter, you can request another copy -- however, you should make sure the agency has your correct address.
Often agencies will see a request for another collection letter as a stall tactic -- to combat this, you could volunteer to accept the letter by email. The collection laws are not detailed on electronic communication, but if the consumer requests an electronic copy of the letter, it's a way to confirm the identity of the agency and collection agent, and receive notice of the debt without putting the file off for a week for delivery.
A collection agent may also not send a falsified court document, or other deceitful documents. They cannot represent themselves as the court, a sheriff, or other false party. They can't put a false creditor, company, or unlawful consequences in the letter.
Whether the contact is by letter or by telephone, a collection agent is required to identify themselves by their legal name (that they are licensed under), the collection agency they operate under, the creditor they represent, and the amount claimed owed.
A collection agent may only attempt to contact a consumer between the hours of 7:00 am and 9:00 pm Monday through Saturday, and 1:00 pm and 5:00 pm on Sunday. They may not attempt to contact you during statutory holidays.
A collection agent may not attempt to call collect, or communicate in a way that the debtor incurs a charge. For those with cell phones that pay by the minute for use, the agent will not know unless the debtor informs them. If you inform an agency that they are causing a cost by calling, calls to that number must cease.
Also, a collection agent may only make more than three contact attempts in seven days after the initial contact with the debtor. This does not include return calls, letters, or contact attempts that the debtor has requested. There are rules about not harassing a debtor, but they aren't defined -- a good rule of thumb is the three contact attempts in seven days.
If the collection agent is told they have a wrong number, they must cease calls unless they have information that reasonably confirms that they have the right party. If you tell an agent that they have the wrong number, and they later find out the phone is registered in your name, or you are on title or lease to the residence, they may be calling you back, and assuming (rightfully) you've been dishonest in an attempt to avoid paying the debt.
Often a collection agent will have to locate the debtor, which may involve calling a spouse, references, employers, possible numbers associated with a name or address that the debtor has on file. However, unless they also owe the debt (as a personal guarantor), or the debtor has requested that the collection agent speak to someone else, they can't discuss the details of the debt and can only ask for contact information on the debtor.
What that means is when well-meaning spouses, parents, or employers intercept a call or contact the agency and ask for details why the agent is calling, the agent can't really give a lot of information. Obviously, in this day of call display and internet searches, it's fairly easy for an outside party to determine the company calling. However, further details must have the debtor's permission.
Answering machines and cellular phones are not necessarily secured forms of communication, and a collection agent should not be leaving details of a debt (or consequences for non-payment) as this may be a violation of the requirements of third party confidentiality. However, if a consumer requests the information to be communicated by email, voice mail, or fax, that recorded consent can be followed. Many agencies are very cautious about leaving information, and you may need to send instructions in writing to have them release information to you in an unconventional method.
A debtor can also ask an agent to communicate directly with their lawyer, power of attorney, trustee or credit counsellor. Technically, the request should come by registered mail, but practically, agencies receive requests to deal with representatives frequently. Keep in mind that the representing party has to consent to this communication -- many lawyers only want to send a boilerplate cease and desist letter on a consumer's behalf, and don't want to spend time discussing the debt with an agent, or a trustee or counsellor will cease representation if the debtor stops making payments. In these cases, the agent may revert to talking to the debtor.
If a collection agent contacts an employer, they can only verify the debtor's employment, title, business address, or contact information. However, something that many consumers forget is the exception of a judgment or a wage assignment -- if the agency or creditor has a lawful judgment, or a wage assignment to file by a credit union, they may file a garnishment of the debtor's wages.
If you are attempting to negotiate a debt, a consumer should understand that payment is the ultimate goal of the agent, but these arrangements should be mutually satisfactory. If negotiations break down, or promises are not kept, there is little a consumer can do to keep the matter from being reported to the credit bureau or if the balance warrants it, stop legal action from occurring. Many consumers don't understand the consequences for non-payment -- here is a link to a government website that discusses consumer rights and the effect of the credit bureau:
Paying Your Account
If you decide to pay your account, collection agencies in Ontario must deposit your funds into their trust account, where they will distribute the funds back to the creditors. Understand that the monies collected are reported to the creditor, usually within 30 days. As the agency is the company that can affect your credit rating, it is best to try to deal with them directly, rather than contact the creditor.
The agency cannot add any charges on top of the balance owed, aside from lawful interest allowed by the creditor (and previously reflected on their invoices and/or contract), courier expenses, credit card fees, or other additional amounts. There are certain exceptions where an amount can be added lawfully -- many municipalities have laws for adding collection fees on top of a balance owed to them, reasonable NSF fees can be added, and so on.
If you negotiate a settlement on an account, make sure you receive a letter in advance releasing you from the debt prior to the settlement, and keep that letter in your records for the next seven years to protect yourself.
If you do pay, make sure you pay in a way that gives you proof of payment, or a receipt -- do not pay with cash in the mail, a money order or cheque without your personal information or file number written on the memo line, and if you are paying by post-dated cheques or pre-authorized payments, make sure everyone is on the same page as far as dates and amounts that have been agreed to.
Consequences For Not Paying
If you do not want to pay your debt, be upfront and honest with the collection agent to save everyone time and energy. If you do not cooperate with the collection agent, they can't threaten you, or use intimidating or coercive language, and can only state consequences they are lawfully allowed to use. If an agent states consequences for non-payment, they should do so in a professional, non-emotional manner.
If you are disputing your debt, it is best to send your detailed dispute of why the debt should not be enforced in writing, and send a copy of your letter to the creditor, the collection agency, and potentially the credit bureau.
When the creditor allows (and in most cases, this is likely), the collection agency can affect your personal credit rating -- collection agencies have the ability to report in the registered item section, showing the agency name, the creditor's name, the original amount of the debt, and the current amount reflecting interest and payments to date. In this day and age, the power of credit reporting is becoming more and more important. If you plan on applying for a loan, credit card, car lease, bank account, or even certain types of employment, a poor credit report may be an obstacle.
For larger balances, if the creditor authorizes it, legal action can be taken by the collection agency -- I address the subject of whether an account can go to legal action here: http://receivableaccounts.blogspot.ca/2011/02/collection-agency-legal-department-fact.html
Making the Calls Stop
Ultimately, if you don't wish to deal with the collection agency, you have the right to make the calls stop -- many agencies don't bring attention to this, but if you send a registered letter to the agency, either disputing the debt and requesting the matter go to court, or send a registered letter demanding communication by mail only, calls must cease.
Understand that if an agency is told to cease communication, they can immediately move to whatever consequences they have from the creditor, whether that be reporting the debt to the credit bureau, or initiating legal action. Demanding communication stop may not be in your best interest, so choose this if communication has totally broken down.
For more information about consumer rights, and your options for dealing with a collection agency, there are numerous sites discussing your options. I would recommend government sites for the most accurate and fair information. Here are some helpful links:
Collection agencies fill a valuable role in the credit cycle, and if managed properly, can reach out to consumers and work with them to resolve outstanding accounts. Most consumers that end up in collections are not bad people, but have been affected by a lack of financial education, economic hardship, living beyond their means, or simply being unaware a debt has been incurred. It's possible for the collection agency to work within the rules set down by the provincial governments and deal with consumers in a professional manner so everyone can be satisfied at the end of the day -- the creditor can be paid, the collection agency can collect on the account, and the consumer can be dealt with fairly.
If you have questions about the right way for collection agencies to represent creditors, you may certainly contact myself at Kingston Data and Credit.
Blair DeMarco-WettlauferKingston Data and Credit