September 5, 2017

That is a very interesting question and one that has a surprising answer. The Bill was intended to prevent Debt Consultants from charging exorbitant fees for what may be questionable services.

The effect of the passage of Bill 55 is to amend the Collection Agencies Act to include companies offering “Debt Settlement” services.  Such companies are now required to be licensed under the Collection Agencies Act and will be subject to the amended rules and regulations.

”  2.  (1)  The definitions of “collection agency” and “collector” in subsection 1 (1) of the Act are repealed and the following substituted:

“collection agency” means,

(a)  a person, other than a collector, who obtains or arranges for payment of money owing to another person or who holds oneself out to the public as providing such a service,

(b)  any person who sells or offers to sell forms or letters represented to be a collection system or scheme, or

(c)  a person, other than a collector, who provides debt settlement services; (“agence de recouvrement”)

“collector” means an individual employed, appointed or authorized by a collection agency to collect debts for the agency, to deal with or trace debtors for the agency or to provide debt settlement services to debtors on behalf of the agency; (“agent de recouvrement”)

So who is affected by the legislation, and how?

Mortgage Brokers have offered negotiated debt settlements for a long time – but now they will be required to either amend their own legislation or stop negotiating debt settlements unless they register as collection agencies.

Non-Profit Credit Counselling Agencies are already licensed as Collection Agencies and have been for decades.  The only thing that the Bill changes for them is the amount of fees they can charge debtors.  Banks and other institutional lenders will undoubtedly continue to pay the same negotiated fees for service.

We understand that currently the Canadian Bankers Association pays a collection fee of 22.5% of the amounts collected.  Hitherto, non-profits have issued “charitable donation receipts” to banks in order that banks may get another layer of (tax) relief.  If the CRA disallowed the charitable status of the non-profits that may put their entire practice into jeopardy and limit the options available to some debtors.  Aside from debt management programmes non-profit Credit Counselling agencies provide a valuable community education service.

Debt Consulting Companies such as Debt Relief Canada or 4Pillars, that have been known to charge their clients hundreds or even thousands of dollars for referrals to trustees, will be able to continue to operate their business as usual, completely unaffected by the legislation.  This is because they do not profess to provide a “debt settlement” service.

The 4Pillars website advertises:

I then select the trustee who I will approach to administer the proposal or bankruptcy. The trustee works on behalf of the creditors and I work on behalf of you. The 4Pillars process ensures that this part runs smoothly with the least amount of stress to our clients.”

There is inherent difficulty within the statement that trustees “work on behalf of creditors” since trustees are required by the Rules to be “neutral” and the notion that the debt consultant selects a trustee that will implicitly comply with the debt consultant is not accurate.  All trustees are all regulated by the same Act and Rules.

Nonetheless, if debt consulting companies only profess to provide a “referral service” and they actively promote Bankruptcy and Proposals as solutions to debt problems they will probably avoid falling under the Bill.  Essentially this type of debt consultant functions to help people make a softer landing in a trustee’s office.  Obviously that practice is good for the trustees that are associated with these companies because they have a stream of work coming in.  However, for the debtor it usually adds another layer of unnecessary cost.

So what is the impact of Bill 55, aside from that noted above?

Some companies that have advertised “active, negotiated, settlements” (which most often are services that are not actually provided) will have their fees controlled and will be required to register as collection agencies.  Companies that do not offer debt settlement options will be unaffected and bankruptcy trustees, such as us, that have frowned on the use of Debt Consultants as referral sources may be forced to rethink their marketing strategy.