On January 1, 2015, the Collection Agencies Act (Ontario) was renamed the Collection and Debt Settlement Services Act (the “CDSSA”), and provisions were added that deal specifically with debt settlement services. Starting July 1, 2015, these new provisions and the regulation will, among other things, provide greater protection and remedies to Ontario consumers who obtain debt settlement services, whether the debt settlement is by installment payments or lump-sum.
The new debt settlement protections will include the following:
• any person performing debt settlement services (“DSC”) must register as a collection agency and comply with strict licensing requirements (e.g. must pass a written exam, requirement to operate from an actual physical office, must be bonded, must comply with trust account rules);
• no up-front fees, other than a $50 start-up in the case of installment plans (e.g. in a Debt Management Plan by a not-for-profit credit counselling agency);
• limitation on amount of total fees charged:
o Installment plans: only 15% of each installment;
o lump-sum plans: only 10% of the amount of the debt settled, payable only upon acceptance by the creditor;
• 10-day cooling-off period to cancel the contract for any reason – by email, fax or mail;
• mandatory cover page that discloses debtor’s rights and certain required information ; and
• requirement of DSC to disclose registered name and registration number in advertising.
The CDSSA applies to any person who provides “debt settlement services”, which is defined in
section 1 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.
Therefore, the CDSSA does not appear to apply to debt consultants who only provide advice and do not provide debt settlement services as defined above.
Lawyers and bankruptcy trustees are exempt and, therefore, do not need to comply with the CDSSA if they offer debt settlement services.
The significant remedies and penalties under the CDSSA include, but are not limited to:
• 10-day cooling off period to cancel the agreement for any reason;
• debtor may cancel the agreement and demand a full refund if:
o the debtor was not provided with a copy of the agreement that complies with the CDSSA within one year; or
o the DSC accepts any payment in contravention of the CDSSA;
• debtor provided with a right of action when the Act is violated;
• if the debtor is successful, the court may order punitive damages;
• a complaint, inspection and investigation process for the Registrar;
• it is an offence to knowingly contravene the Act or its regulations, including an officer or director of a corporation;
• it is an offence to unknowingly contravene certain sections (e.g. accepting payment in violation of Act; failing to refund payments when CPA demand is made);
• a person convicted under the Act is liable to a fine of up to $50,000 or imprisonment and a corporation is liable to a fine of up to $250,000; and
• restitution orders may be made if convicted.
The Huffington Post Canada has already reported that many debt settlement companies have gone out of business due to the new law since they can no longer charge high upfront fees. However, some debt settlement agencies are attempting to skirt around the new law by teaming up with law firms in order to continue their current business practices.