September 5, 2017

Will the government ever get it right?

One of the greatest challenges in the area of financial literacy is deciding who is telling the story.  There are many competing interests that have had an impact on the area of debt management during the past several decades.

Filing a bankruptcy or a consumer proposal (both fall under the Bankruptcy & Insolvency Act – we’ll just call it the “Act” hereafter) has become pretty common place with well over 100,000 Canadians filing every year for well over a decade.

Trustees in bankruptcy are the only administrators of the Act, the only legislation that provides “programmes” for individual consumers to get out of debt.

But for many years, in fact since the 1960s, non-profit credit counselling agencies have been assisting debtors, typically with lower, and uncomplicated, debt levels and low income to resolve their issues through Debt Management Programmes as an alternative to filing a bankruptcy or a proposal.

At one point the process of bankruptcy was more cumbersome and costly than it is today and that created a barrier for service for many consumers, Credit Counselling filled that niche in the market place.

However, following reforms to the Act summary proceedings became available and Debt Management Programmes were usually less viable when compared to formal insolvency proceedings such as Consumer Proposals.  In Ontario the Bob Rae Government cut funding to Credit Counselling Agencies, which had been previously funded by the Ministry of Community and Social Services, deferring to the new Federal Insolvency options.

Credit Counselling Agencies were quick to adapt to the change and formed their own not-for-profit association which successfully petitioned major institutional creditors to fund their ongoing operations through a commission structure.  In their reincarnated form Credit Counselling Agencies continued to do good work to ensure that distressed debtors were getting assistance, either in the form of education, referrals to Trustees or Debt Management Programmes.

The Credit Counsellors’ Association obtained a contract from the Federal Government to develop a training course for Certified Bankruptcy & Insolvency (“BIA”) Counsellors to fulfill the mandate, under the reformed Act, requiring that bankrupts and proposal debtors attend at two credit counseling sessions.  The course, with subsequent modifications, has been used ever since to train BIA Counsellors.

The Ontario Government recently erred tragically on the passage of Bill 55 which had a negative, perhaps unintended, impact on the operation of non-profit credit Counselling Agencies but failed to address the issue of Debt Consultants who rip people off with fees of thousands of dollars for nothing more than a referral to a Trustee for the filing of a Consumer Proposal or a Bankruptcy.

Now the Federal Government, which has been making noises about its new “Financial Literacy Programme” intended to help consumers address issues of increasing consumer debt, has the opportunity to select these same Counsellors, who have engaged people at low levels of financial literacy for decades, to set up new training programmes.  But will they?

It is important to remember that “Financial Literacy” is quite different from “Literacy” the most educated people in Canada carry far more debt to income than the least educated.