Ontario Canada has announced new pending regulations to catch up with other provinces to protect consumers from advance fee debt settlement companies.
The Minister of Consumer Services, Margarett Best said, “There is evidence of harmful practices used by some debt settlement companies and that is why our government is taking steps to protect consumers. We want to put a stop to abusive practices in the marketplace. Consumers should know their rights before they sign contracts and they should not make any payments until they get results.” – Source
This move will:
- Ban debt settlement companies from charging up-front fees
- Limit the amount of fees consumers are charged
- Require mandatory disclosures of consumers’ rights and risks
- Require clear, transparent contracts
- Ensure set aside funds are under consumer control
- Implement a 10-day cooling-off period
- Prohibit misleading advertising
- Establish standards of conduct
- Provide consumer remedies and enforcement
Ontario is joining other provinces like Alberta, Manitoba and Nova Scotia, which have introduced regulations to crack down on debt settlement companies.
Fee limits suggested are:
The proposed rule would limit fees to be no more than the following amounts:
1. If an operator is not an incorporated full or associate member agency of the Ontario Association of Not-For-Profit Credit Counselling Services and arranges or negotiates a debt repayment agreement between the consumer and a creditor, 10 per cent of the debts that the consumer owed to the creditor at the time that the consumer entered into the debt settlement services agreement with the operator.
2. If the operator is an incorporated full or associate member agency of the Ontario Association of Not-For-Profit Credit Counselling Services and arranges or negotiates a debt repayment agreement between the consumer and a creditor that requires the consumer to make a series of scheduled debt repayments over a period of time, the sum of,
i. a one-time administration fee that is not higher than the average monthly scheduled repayment set out in the agreement, and
ii. 15 per cent of the amount of each scheduled debt repayment.
For example, a debt settlement provider, who is not a member of the Ontario Association of Not-For-Profit Credit Counselling Services who negotiate a repayment agreement to settle a debt, for example a debt of $20,000, could charge a fee of not over $2000 (10% of $20,000) payable once services are successfully completed.
The rule for members of the Association would reflect the typical repayment plan approach. If the average monthly payment towards debts was $400, then a one-time fee of not over the same amount of $400 could be charged. The credit counselling service could also take up to $60.00 of the monthly payment of $400 as fees (15% of $400), leaving no less than $340.00 to be distributed to creditors.
The only additional charge permitted would be to pass back to a consumer a chargeback fee that an operator incurs from a financial institution for a dishonoured consumer cheque or other payment instrument (e.g., a not-sufficient-funds cheque). Only the actual charge from the financial institution would be permitted to be passed through. Such charges to a business for attempting to deposit such a cheque are typically less than $10. – Source
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