If you’re considering getting professional debt help it’s crucial to make a fully informed decision about the organization or individual you choose to work with before moving ahead. What many BC consumers seeking debt solutions do not realize is how uneven the playing field of debt help as an industry is – and those unknowing consumers often pay the price.
Working with a BC Debt Help Expert
When it comes to debt relief services across Canada there is a broad range in authority, expertise, legal power and even trustworthiness. It falls to each province to oversee debt help services offered by individuals and organizations in their jurisdiction. Unfortunately, consumer alerts issued at a federal level, as well as published provincial guidelines, may not be sufficient to fully educate the public on key differences in debt help providers which can ultimately leave consumers at risk of abuse.
What many consumers are not aware of is that of all organizations and professionals that offer debt help services, only a single one operates with complete (and robust) federal legislation, licensing, and regulation – Licensed Insolvency Trustees.
So although you can engage debt help services other than those of a Licensed Insolvency Trustee, a “buyer beware” caution is often applicable. Read on to learn some of the key facts you should know about informal debt repayment plans and working with various different debt management providers in BC.
What is a Debt Repayment Agent? | What is a Debt Settlement Company?
Debt repayment agents or debt settlement agencies are people/companies who offer services to represent you with your creditors, for a fee. They may offer help negotiating, making repayment arrangements with and even distributing your payments to your creditors. Some credit counselling organizations also provide these services.
This type of debt settlement can be advertised under many different names in addition to ‘Debt Settlement’, such as: Debt Pooling, Debt Negotiation, Debt Consolidation, Debt Elimination.
Here’s how debt settlement usually works:
- For a fee, a debt repayment agent negotiates with your creditor, offering them a lump sum of money (usually less than what you owe) to settle your debts.
- If the creditor agrees to the offer you will then pay that lump sum to your debt repayment agent, who will then pay your creditor.
Debt settlement can be more complex than it may first appear. There are common challenges to be aware of, including gaps between provincial and federal regulations that leave plenty of room for consumers to slip through the cracks.
Debt Settlement Licensing & Fees
In attempts to make debt settlement agents “safer” for consumers, some provinces (including BC) brought in a set of basic rules and general licensing to keep tabs on debt repayment agents. In 2016 BC changed its Business Practices and Consumer Protection Act in order to: 1) Require licensing with Consumer Protection BC and 2) Stop charges for upfront fees before a repayment agreement is reached with your creditors.
- In BC, a person who is defined as a debt repayment agent (i.e., charges fees to act for/represent you with your creditors) is required to be licensed with Consumer Protection BC, the province’s regulator for debt repayment agencies.
These changes however still do not serve to regulate the overall industry in its entirety and if you decide to work with a debt repayment agent or credit counsellor, your recourse should there be a problem may be very limited. In fact, if you’re dealing with organizations located out of province, you may have no recourse whatsoever if promises are not lived up to. The changes also do not:
- Stop non-BC based companies from targeting BC consumers with their services and promises.
- Prevent organizations from charging you for other services such as consulting and referral fees (whether they are registered in BC or not).
It’s important to understand that despite the province’s implementation of licensing in the industry, informal debt repayment is not a regulated industry – many consumers may misinterpret licensing as “government-approved” or “legally-sanctioned” solutions.
- There is no such thing as provincially or federally affiliated, subsidized or supported debt repayment plans.
- The options that Canadian consumers DO have that most closely resemble these attributes are those governed by the Bankruptcy and Insolvency Act: Consumer Proposals, Division I Proposals, Bankruptcy.
- The Debt Collection and Repayment Regulation of BC’s Business Practices and Consumer Protection Act states that your debt repayment contract must include a specific statement, part of which notes:
- “The services of a debt repayment agent are not provided on behalf of, or in affiliation with, the Province of British Columbia or the Business Practices and Consumer Protection Authority, commonly known and doing business as Consumer Protection BC. Using the service of a debt repayment agent will not necessarily improve your credit rating, deter the efforts of a creditor to collect a debt or prevent legal action to recover the debt, including garnishment of your wages.“
The Debt Collection and Repayment Regulation also sets guidelines for maximum fees and disbursements a debt repayment agent can charge you. Understanding debt repayment agency fees can be complicated, and you can be charged different amounts for services depending on the model your specific agency is following.
Here are two examples to illustrate the difference in fees:
- If your debt repayment agent negotiates with your creditor(s) the amount to be paid and you make a repayment plan lasting 90 days or more, you can be charged as much as:
- 15% of the gross amount to be repaid, and
- A one-time charge up to an amount equal to the average monthly distribution being made to the creditor.
- If your debt repayment agent negotiates with your creditor(s) the amount to be paid and you make a one-time payment in full, you can be charged as much as:
- 10% of the gross amount received, with the fee being paid after the agreement with your creditor has been made.
It is extremely important to understand all costs and aspects of your contract before signing anything.
Other Common Problems with Informal Debt Settlement
- This type of debt relief process is not legally governed, and your creditors do not have to negotiate with the agent. Many creditors simply will not deal with a debt settlement company or credit counsellor working on your behalf. Debt settlement agents can offer you no protection from creditors.
- Few people have a lump sum of cash ready, and during the time it takes to save up the money that will be offered to your creditors, your debts are often going unpaid.
- Some debt repayment agents will direct you to stop making payments to your creditors even prior to negotiating your balance. This (unsurprisingly) can aggravate or cause a situation where creditors then escalate their collection actions against you potentially leaving you in a worse and more stressful position than when you had originally sought help.
What is a Credit Counsellor? Is Credit Counselling Different to Debt Settlement?
Although they may use different titles, credit counsellors can have a lot more in common with debt repayment agents (discussed previously) than you might think. Virtually anyone can call themselves a credit counsellor and debt repayment agents can advertise their services as credit counsellors too.
It’s important to know and understand that credit counselling is NOT a government-licensed profession (nor a regulated industry). Credit counsellors aren’t legally required to have any specialized education and training; although there are accreditations for credit counsellors in Canada, these are self-regulated.
- Credit counselling is a term that can describe several different debt help services, including consolidated credit plans for consumers, or in some provinces credit counsellors may be registered as collection agents.
- If you’re going to access even free resources a credit counsellor has available, you should at a minimum ensure they are part of an association in good standing.
- Like debt settlement agents, BC credit counsellors who offer debt management plans and collect fees for these services need to be licensed with Consumer Protection BC under the Business Practices and Consumer Protection Act.
- This is applicable to for-profit businesses as well as non-profit organizations.
A credit counselling organization may offer resources such as credit education, workshops or budgeting tools at no cost – they may also offer to enroll you in their debt management programs, where costs often kick in.
Here’s how credit counselling debt management plans usually work:
- A credit counsellor will contact your creditors to attempt to negotiate an informal arrangement where you will consolidate your debts into a monthly repayment plan.
- Your eligible creditors may agree to stop charging ongoing interest, allowing you the benefit of the good rapport/close working relationship a credit counselling organization has with your lenders.
- Normally you should expect to repay 100% of your debt to the creditors that will negotiate with credit counsellors, plus the counsellor’s fees.
Ultimately, like debt repayment agents, credit counsellors have limited abilities when it comes to debt management plan solutions, and these plans can fall short for consumers in many situations. In summary:
- Credit counselling debt management is NOT a legal solution.
- Many common types of debt cannot be negotiated or consolidated through informal plans.
- There is no ability to enforce negotiation or protection over creditors.
Fees for Non-Profit VS For-Profit Credit Counselling
While non-profit organizations may offer free resources and workshops, often referenced as charitable resources, even by government sources – these are services separate from debt management plans where you will be charged fees for informal debt negotiation services.
- In Canada there is no such thing as 100% free debt management services. Even a personal bankruptcy will have nominal cost. (Although in situations where you’re unable to pay your debt but have virtually no income or assets, there may be other options to help you.)
Consumers should be aware that non-profit AND for-profit credit counselling agencies charge fees and receive money for debt management plans.
- For-profit organizations get paid through fees they charge you via their repayment plans.
- Non-profit organizations can be funded by both:
- Costs you are charged for their debt repayment programs.
- Money from the credit granting community.
Non-profit credit counsellors may try to distinguish themselves from their for-profit counterparts, and while choosing a non-profit organization does often offer more accountability and professional expectation over working with other credit counsellors, there is arguably still much room for improvement in complete transparency.
A Licensed Insolvency Trustee can help you understand all your options (formal and informal) to manage your debt, or even have debt forgiven. Non-judgmental consultations where you can discuss your situation with Sands & Associates’ qualified debt experts are free and confidential – no referral required.
Learn more about debt plans, consolidation with Consumer Proposals and working with a Licensed Insolvency Trustee. Book your free debt consultation now – virtual appointments also available.