New punitive provisions restricting the fees charged by debt settlement firms, effective July 1, 2015, will make it impossible for debt settlement firms to remain financially viable.
(PRWEB) February 24, 2015
“Not a single debt settlement firm in Ontario will be in business eighteen months from now”, says Mark Silverthorn, former collection lawyer, collection industry insider, blogger, and author.
The disappearance of traditional debt settlement providers from the marketplace in Ontario will mean major opportunities for some small law firms and collection agencies in the province. Lawyers, in particular, should do very well because they are exempt from the new law, and, therefore, are able to avoid the draconian restrictions on fees faced by traditional debt settlement firms.
Many existing debt settlement firms in Ontario are scrambling to avoid imminent extinction. Some are currently negotiating with law firms to become the in-house debt settlement department at the law firm. This transformation would enable the debt settlement provider to be exempt from the new law and the punitive restrictions on fees. It will be interesting to see if those law firms swallowing existing debt settlement firms get a bad case of indigestion because of potential issues involving professional misconduct.
Lawyers, however, will not have the Ontario debt settlement marketplace all to themselves. A number of small Ontario-based collection agencies should be able to profitably offer debt settlement services to Ontario residents as a business secondary to their primary business of collecting monies on behalf of creditors. Unlike lawyers who are exempt from the Act, collection agencies are subject to the new law and its harsh restrictions regarding fees.
There are a number of important reasons, however, why small Ontario-based collection agencies should be profitable offering debt settlement services. A collection agency operating in Ontario must possess an Ontario collection agency license—the same license required by a firm providing debt settlement services. Therefore, any firm licensed as a collection agency in Ontario can legally provide debt settlement services without spending another nickel to satisfy the province’s onerous licensing regime.
Furthermore, collection agencies already have virtually all the resources necessary to operate a profitable debt settlement department on their premises. They have workstations with sophisticated phone systems and advanced collection software. Senior management at collection agencies have intimate knowledge of settling debts and they have invaluable contacts with creditors and other collection agencies. Finally, unlike traditional debt settlement firms, after July 1, 2015, collection agencies will continue to benefit from a lucrative business– third party collections. For small collection agencies, offering debt settlement services to Ontario residents will simply be an optional profitable sideline business.
Former industry insider, Mark Silverthorn, says the Ontario Government has miscalculated the fallout from the new law. “The Ontario Government thought the new law would put every existing debt settlement firm out of business and then government regulators could go back to sleep. The disappearance of traditional debt settlement firms, however, will lead to the entry of new debt settlement providers creating a whole new set of problems. Today in Ontario we are witnessing the birth of a new hybrid firm—one legally entitled to offer collection services to creditors and debt settlement services to consumers creating all kinds of conflicts of interest which are not in the public interest.”
For more information on the Ontario Collection and Debt Settlement Services Act, visit Bankruptcy Canada.