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Credit Counselling - Recent Trends and the Increase in Debt Poolers in Canada
Review of Credit Counselling – Recent Trends
Who’s in the Business and Who is Best Serving Debtor Needs? This is a question that I get asked regularly. With the increasing presence of Debt Poolers and those calling themselves Credit Counselor, there seems to be many issues with respect to Credit Counselling and Debt Pooler's – as the level of Canadian debt has been ever increasing, there is also the reciprocal increase in companies who are in the business of assisting debtors deal with their debts.
But are all credit experts providing the same level of service to individual consumers? Some conclusions from industry review and reported the most recent Annual Review of Insolvency Law, found the following:
- - Debtors are not presented with all options – bankruptcy option is generally ignored – In the United Stated, in response to problems with credit counsellors or debt poolers, the USDMA now requires all credit counselors to cover this option
Should Canadian Regulators require that all credit counselors discuss this option?
A review of the Canadian Credit Counselling industry found that currently no federal legislation or regulation covers all Canadian Credit Counsellors as there is no central regulatory process governing credit counseling and thus debtors are not properly served when not all options are presented.
- In British Columbia, there is no regulation for Debt Settlement Companies, which operate differently than the classic Credit Counselling Societies.
- Credit Counselling in British Columbia is generally a self-regulated industry but by being self-regulated, membership if voluntary. However, if any credit counselor is collecting funds from debtors to be used to pay off their creditors, they must be licensed as a “Debt Pooler” in order to operate a Trust Bank Account, which will hold the deposits made by debtors. This is the banking regulation governing all Collection Agencies in British Columbia
- The new debt settlement companies get around these banking regulations by not actually holding the deposit funds in their own company’s name. Rather what they do is require the debtor themselves to set up separate personal bank accounts but then giving the Debt Settlement companies access to these accounts via automatic withdrawals for fees, and in turn allowing the company to skirt around the rules with respect to the banking regulations. Once a settlement war chest is brought up to a sufficient amount, then an only then are the creditors approached with a settlement offer.
- The issues surrounding Debt Settlement Companies are varied, but some of the issues surrounding these types of Companies and advice is that debtors don’t understand the nature of the contract they are entering into, they often do not understand the fees that are being charged, there are many complaints by debtors of high pressure sales tactics by the debt pooling companies, the actual affect on their credit reports, or the ongoing rights of creditors to being action against individual debtors.
- The issue of fees charged by these types of Debt Settlement agencies is also issues given that these fees can be charged at any time and are unregulated. They are also not subject to third party review or regulation or sometimes even the benefit of a brick and mortar building or a real person to talk to if difficulties occur.
- FCAC issued a warning to consumers in 2012 about the practices surrounding debt-pooling companies.
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