Canadian Creditors Dropping the Ball Where Ontario Residents Represented by Debt Settlement Firms

Mark Silverthorn

The Canadian ARM industry may have dropped the ball when it comes to dealing with Ontario consumers represented by debt settlement firms.  More than half the firms offering “debt settlement services” today as defined in the Ontario Collection and Debt Settlement Services Act might be doing so illegally without satisfying registration requirements or failing to comply with mandatory language provisions contained in the Act.

A debt settlement firm contravening Ontario law is in a very vulnerable position.  An astute bill collector—once it has confirmed that a consumer is represented by a firm providing debt settlement services illegally–is positioned to leverage this information into a successful recovery of monies owing.

The phrase “debt settlement services” is defined in subsection 1(1) of the Act as: “offering or undertaking to act for a debtor in arrangements or negotiations with the debtor’s creditors or receiving money from a debtor for distribution to the debtor’s creditors, where the services are provided in consideration of a fee, commission or other remuneration that is payable by the debtor.”

Firms offering debt settlement services which are not registered as collection agencies in Ontario often try and disguise the nature of the services they offer in an attempt to avoid unwanted scrutiny from Ontario regulators.  It is common for the phrase “debt settlement” never to appear in a contract which clearly falls within the definition of a “debt settlement services agreement” under the Act.

There are three categories of debt settlement operators that are vulnerable.  The first category is the debt settlement provider—one that is not a law firm—which is not registered as a collection agency under the Act.  One can confirm whether or not a firm is registered as an  Ontario collection agency by sending an e-mail to the appropriate staff member at the Ontario Debt Regulation Unit at the Ministry of Government and Consumer Services.

The second category is a debt settlement provider that possesses the necessary collection agency registration but fails to comply with certain mandatory provisions in the Act.  Under the Ontario Collection and Debt Settlement Services Act certain wording must appear in a debt settlement services agreement including a government-mandated first page of the agreement.  In some instances, it might be helpful for a creditor to obtain a copy of the agreement used by a debt settlement services provider.

A third category of vulnerable debt settlement service provider is a law firm where some, or most, of the law firm’s contractual obligations are performed by some other entity, typically a traditional debt settlement firm.  These law firms run the risk that a judge or a Tribunal might rule that they are not entitled to be exempt from the requirement of being registered as a collection agency under the Act.

How might a creditor use this information?

If a creditor or its collection agent satisfies itself that a debt settlement provider is required to be registered as a collection agency under the Ontario Collection and Debt Settlement Services Act but it is not registered then the creditor has a number of options.

A creditor might choose to simply advise the consumer that it is represented by a debt settlement service provider which is not legally entitled to provide debt settlement services on its behalf.  Furthermore, with respect to any debt settlement agreements entered into after June 30, 2015, a consumer has the right not only to cancel the debt settlement agreement with an unregistered debt settlement provider but also to obtain a one hundred percent refund of fees paid if the consumer takes appropriate action within one year of entering into the debt settlement agreement.

A creditor might also choose to make a complaint to the Ontario Government that a firm is offering debt settlement services without being registered or that its debt settlement agreement contravenes the Act.  This is a two-step process.  A written complaint must first be made to the debt settlement service provider.  Subsequently, a Complaint Form, available on the Ontario Government’s website, must be completed, and submitted to the Ontario Government.

A creditor or its agent might also write to the debt settlement service provider simply requesting a copy of its current Ontario collection agency registration or a legal opinion as to why it is exempt from registration as a collection agency under the Ontario Collection and Debt Settlement Services Act.  One might anticipate that a debt settlement provider that contravenes Ontario’s Collection and Debt Settlement Services Act might be very motivated to enter into a settlement with the creditor.  In this scenario a creditor would be in an advantageous bargaining position.

Mark Silverthorn is a former collection lawyer and published author.  He is the Founder of Comprehensive Debt Solutions.  The firm’s website is www.comprehensivedebtsolutions.ca.