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Collection Agencies (Ontario)
Legal Guide
Chapter 4A - Debt Settlement Services- Overview
- Regulation of Debt Settlement Services
(a) Overview
(b) Prohibited Practices
(c) Regulated and Prohibited Representations
- DSS Agreements
(a) Only One Agreement Where DSS Agreement
(b) DSS Information Generally
(c) Formalities of DSS Agreements
(d) Amendment of DSS Agreement
(e) Cancellation of DSS Agreements
- Payment for DSS
(a) Regulation of Payment for DSS
(b) When Payment May Be Taken
(c) Refund After Cancellation
- Debtor May Sue
- Records
1. Overview
With amendments passed in 2013, the CADSSA expanded to regulate a new category of financial 'service' to debtors called "debt settlement services" [CADSSA 2(1)].
'Debt settlement services' ('DSS') "means 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", or in other words for being paid by debtors to negotiate with and/or pay their money to their creditors [DSS agreements has a corresponding meaning] [CADSSA 1(1)].
This service is commonly known as 'debt consolidation', and is practiced widely by non-profit agencies trying to help debtors. Apparently someone figured they could make a buck at it, but perhaps too much at the expense of debtors - thus the need for regulation.
2. Regulation of Debt Settlement Services
(a) Overview
It is prohibited for either a collection agency or a collector to "engage in any prohibited practice or employ any prohibited method in providing debt settlement services or in respect of debt settlement services agreements" [CADSSA 22(f)].
(b) Prohibited Practices
The following are prohibited practices and methods by collection agencies or collectors respecting debt settlement services (some of these only make sense when you review the DSS regulations below) [G Reg 29]:- to restrict the debtor from having access to his or her consumer report, or make any oral or written representation suggesting that the debtor is restricted from having such access;
- to restrict the debtor from communicating with his or her creditors;
- to fail to give a written report to the debtor on the performance of the agreement within 15 days after requesting it;
- to offer or pay any compensation to a debtor in exchange for the debtor entering into a debt settlement services agreement;
- to directly or indirectly require or accept any money for assisting a debtor to obtain an extension of credit other than an extension of time for the debtor to repay a debt;
- to fail to inform a debtor’s creditors that the collection agency or collector is authorized to arrange or negotiate a schedule of payments or a one-time payment on the debtor’s behalf, within 15 days of becoming authorized.
- to fail to inform a debtor of a refusal by a creditor to negotiate a schedule of payments or a one-time payment, within 15 days of the refusal;
- to communicate information about a debtor’s debts to any person except the debtor, a guarantor of the debt, the debtor’s representative or a creditor of the debtor without the debtor’s written consent;
- to fail to provide information as to how to contact the collection agency or collector during normal business hours;
- to fail to respond to a debtor’s communications within a reasonable time;
- to obtain a debtor’s contact information from a third party unless the third party named the collection agency or collector that would receive the information and the debtor explicitly consented to the contact information being shared with the collection agency or collector;
- to misrepresent the time needed to achieve the results promised by the collection agency or collector;
- to enter into a debt settlement services agreement with a debtor if it is apparent that the debtor’s creditors would not enter into an agreement to settle the debt;
- to enter into a debt settlement services agreement with a debtor if it is apparent that the debtor is not able to protect his or her interests because of disability, illiteracy or inability to understand the agreement or similar factors;
- to give any person false or misleading information.
(c) Mandatory and Prohibited Representations
The following representations regarding a DSS must be communicated or caused to be communicated by a collection agency or collector [CADSSA 16.3(2), G Reg 26(3)]:- "all terms of a debt settlement services agreement that are necessary for understanding the agreement";
- "a clear and detailed explanation of the effect that a debt settlement services agreement will have on the debtor’s credit rating"; and
- the following further representations:
1. If the collection agency has a website, any place on the website that requests a debtor’s personal information shall clearly and prominently display the collection agency’s registered name, principal business address in Ontario, telephone number, fax number, e-mail address and registration number under the Act, set out as “Ontario Registration # [insert registration number]” in English or “No d’inscription en Ontario : [insert registration number]” in French.
2. If an advertisement is made by or on behalf of a collection agency, the advertisement shall clearly and prominently state the collection agency’s registered name and registration number under the Act set out as “Ontario Registration # [insert registration number]” in English or “No d’inscription en Ontario : [insert registration number]” in French.
The following representations regarding a DSS may not be communicated or caused to be communicated by a collection agency [CADSSA 16.3(1), G Reg 26(1,2)]:- a claim that the services are provided on a non-profit or charitable basis, if they are not;
- a claim that the collection agency’s operations or programs are approved by, or a part of, a program run by the government of Ontario, the government of Canada, or the government of any other jurisdiction outside Ontario, if they are not;
- any reference to registration under the Act, other than the collection agency’s or collector’s registration number under the Act;
- any claim of savings or other results for debtors that is not based on typical results;
"(T)ypical results means the average results obtained by the collection agency, over a period of at least six months and no longer than 12 months in the preceding calendar year, in respect of all debts that were the subject of a debt settlement services agreement during that period."
- any claim that misrepresents or exaggerates the services provided under the agreement or the effects or benefits of those services, including but not limited to:
- a claim that using the services will or may deter the efforts of a creditor or agent of a creditor to collect a debt, and
- a claim that using the services will or may prevent legal action or garnishment of the debtor’s wages.
3. DSS Agreements
(a) Only One Agreement Where DSS Agreement
Only one DSS agreement shall be in place between a collection agency and a single debtor at any one time, and any other agreement by which the agency provides any services to the debtor "shall be deemed to be part of the debt settlement services agreement for the purposes of this Act, whether or not the other agreement comes within the definition of a debt settlement services agreement" [CADSSA 16.5(2)].
(b) DSS Information Generally
When a collection agency or a collector "is required to disclose information under this Act relating to a debt settlement services agreement, the disclosure must be clear, comprehensible and prominent" [CADSSA 16.5(3)], and "the information must ... be delivered in a form in which it can be retained by the debtor" [CADSSA 16.5(4)].
"Any ambiguity that allows for more than one reasonable interpretation of a debt settlement services agreement or of any information that a collection agency or collector is required to disclose under this Act shall be interpreted to the benefit of the debtor" [CADSSA 16.5(5)].Note: Re Consumer Protection Act, 2002
References in [s.2(f-g) below] to ss.92 and 94 of the Consumer Protection Act, 2002 here [in CADSSA s.16.6-16.8] are to be read as [CADSSA 16.9]:- "references to a consumer agreement as references to a debt settlement services agreement";
- "references to that Act as references to this Act";
- "references to matters that are prescribed as references to matters prescribed under that Act"; and
- "references to the regulations in those provisions as references to the regulations made under that Act and the regulations made under this Act". See the Isthatlegal.ca Consumer Protection (Ontario) Legal Guide.
See s.7 "Consumer-Issued Notices" of Ch.7: General Civil Remedies and s.3(f): General Rescission (Cancellation) Remedies, Notice of Rescission or Cancellation Required of Ch.7: General Civil Remedies (c) Formalities of DSS Agreements
Neither a collection agency or a collector may provide DSS to a debtor unless the collection agency provides the following details in the DSS agreement in writing [CADSSA 16.5(1), G Reg 27(1)]:- Methods of Negotiating
The DSS agreement shall indicate which of the following methods of negotiating the settlement of the debtor’s debts the collection agency will pursue with respect to each of the debtor's creditors, either:
- Schedule of Payments
A proposed schedule of payments in respect of each debt, detailing:
. the proposed schedule of payments for each debt,
. the maximum payment or security for payment that the collection agency may require or accept for services provided under the agreement shall be 15 per cent of every payment made by the debtor to a creditor in respect of a debt to which the agreement applies, and
. on the first page of the agreement shall be the document entitled “Repaying Debt and Credit Counselling—What You Need to Know” and dated November 24, 2014, which is available on a Government of Ontario website.
- One-Time Payment
On or before a specified date, an offer to settle the debt with a one-time payment that is less than the amount of the debt, detailing:
. for each debt, the date on which an offer to settle will be made and the amount of the one-time payment that will be offered,
. the maximum payment or security for payment that the collection agency may require or accept for services provided under the agreement shall be 10 per cent of the amount of each debt, at the time the agreement is signed, that is settled through the collection agency, and
iii. on the first page of the agreement shall be the document entitled “Settling Debt—What You Need to Know” and dated November 24, 2014, which is available on a Government of Ontario website.
- Termination
The DSS agreement shall indicate, that unless a termination provision provides for an earlier termination date, the agreement terminates 18 months after the later of:
- . the date the agreement was entered into,
- the last day on which a payment was made in connection with the agreement, or
- if any debts to which the agreement applies are settled by or through the collection agency, the last day on which such a settlement occurred.
- Funding from a Creditor
The DSS Agreement shall indicate, whether or not the collection agency receives or will attempt to receive funding from a creditor in exchange for entering into a debt settlement services agreement with the debtor.
- Additional Information
The DSS Agreement shall also indicate:
- the name, address and telephone number of the debtor;
- the collection agency’s registered name, principal business address in Ontario, telephone number, fax number, e-mail address, website address and registration number under the Act, set out as “Ontario Registration # [insert registration number]” in English or “No d’inscription en Ontario: [insert registration number]” in French;
- the names of any collectors who negotiated or concluded the agreement with the debtor on behalf of the collection agency;
- the date on which the agreement was entered into;
- the proposed termination date of the agreement, together with the statement that the termination date is subject to the rule specified (above);
- an itemized list of all services that will be provided under the agreement;
- the details of all the debts to which the agreement applies, including each creditor’s name, the total amount owed to each creditor and the interest rate applicable to each debt;
- the total amount owed by the debtor to all creditors under the agreement;
- any restrictions, limitations and conditions under the agreement;
- a statement that the debtor is entitled to receive a written report on the performance of the agreement within 15 days after requesting it;
- the date and signature of the debtor, the collection agency and the collector who dealt with the debtor at the time the agreement was signed.
No collection agency or collector shall, in relation to a DSS agreement, falsify, assist in falsifying or induce or counsel another person to falsify or assist in falsifying any information or document ...." [CADSSA 16.4(1)], or "furnish, assist in furnishing or induce or counsel another person to furnish or assist in furnishing any false, misleading or deceptive information or documents" [CADSSA 16.4(2)].
(d) Amendment of DSS Agreement
The CADSSA provides for amendment of DSS agreements, if it is done expressly by the parties and regardless of whether the original agreement allows for it or not [G Reg 27(2)]. An amendment is only effective if it otherwise "meet(s) all the requirements in the Act and this Regulation" [G Reg 27(4)]. No amendment shall effect debtor rights and obligations retroactively, nor affect any debt that has already been settled under the agreement [G Reg 27(5)].
If amended, the debtor has a 10-day cancellation right (which may be exercised without any reason), counting from the date that the debtor receives a written copy of the amended agreement [G Reg 27(3)]. Such a cancellation is governed by the rules set out in "(e) Cancellation of DSS Agreements", below [under CADSSA 16.7(3-5)].
(e) Cancellation of DSS Agreements
A debtor may cancel a DSS agreement, without reason, within 10 days after receiving a written copy [CADSSA 16.7(1)]. Also, the debtor may also cancel the DSS agreement if no written copy is received that complies with s.16.5(1) [see "Formalities of DSS Agreements"] within one year [CADSSA 16.7(2)]. Notice of either cancellation right shall be done under ss.92 and 94 of the CPA, 2002 [CADSSA 16.7(3)] (see the "Note", above).
The effect of such cancellation is to rescind 'ab initio' ('from the beginning') all of the following [CADSSA 16.7(4)]:- the DSS agreement,
- all related agreements [except "any agreement that the debtor has entered into with a creditor"] [CADSSA 16.7(5)],
- all guarantees given by the debtor or a guarantor in respect of money payable under the agreement,
- all credit agreements [as defined in Part VII of the Consumer Protection Act, 2002], and other payment instruments, including promissory notes:
. extended, arranged or facilitated by the person with whom the debtor entered into the agreement, or
. otherwise related to the agreement.
4. Payment for DSS
(a) Regulation of Payment for DSS
No collection agent or collector may, directly or indirectly, "require or accept any payment or any security for the payment" [for greater clarity, every arrangement where security is taken for payment is void] in [CADSSA 16.6(1)(3)]- advance of providing the services, or
- excess of the maximum amount or determined in accordance with the regulations" [SS: I can't find any regulation prescribing this amount].
"(P)ayment means any compensation, however described, that a debtor is or will be required to pay a collection agency or any other person as a condition of entering into a debt settlement services agreement" [CADSSA 16.6(2)].
Where a collection agency or collector enters into a DSS agreement before it is registered, it is not entitled to receive any payment or security for payment under the agreement [CADSSA 16.6(4)].
A debtor who makes a payment required or accepted in violation this section [CADSSA s.16.6], "may demand a refund by giving notice in accordance with section 92 of the Consumer Protection Act, 2002 and section 16.9 of this Act within one year of making the payment" [CADSSA 16.6(5)].(see the CPA "Note" above). The collection agency receiving such a demand or notice shall provide the refund within 15 days (this refund duty also applies to demands or notices received under 16.8(1): see "Refund After Cancellation", below) [CADSSA 16.6(6), G Reg 28(6)].
(b) When Payment May Be Taken
A collection agency may not require or take any payment for services "in respect of a debt owed by a debtor to a creditor" until "the debtor has entered into an agreement with the creditor regarding the amount to be paid by the debtor to the creditor to settle the debt", the debtor has made at least one payment under such an agreement and the collection agency has written evidence of such payment [G Reg 28(1)].
When the collection agency used the 'Schedule of Payments' method of negotiation [s.3(c), above] they may charge an amount of up to $50 for that, before these G Reg s.28(1) conditions are met [G Reg 28(4)].
NSF cheque charges may be made against to debtor, but only in the amount charged by the financial institution [G Reg 28(5)].
If the collection agency provides debt settlement services with respect to more than one creditor, a collection agency may not "require or accept payment or security for payment for its services" until the conditions (above) are met for each of them [G Reg 28(2)].
The amount of "payment or security for payment" for debt settlement services that a collection agent may charge for any single creditor is limited to the pro-rated fraction of the debt owed to that one creditor to the total debts owed by that debtor to all his creditors [G Reg 28(3)].
(c) Refund After Cancellation
A debtor who cancels a DSS agreement [as in (a) above] may demand a refund of "all payments" by giving notice under CPA s.92 within one year after entering into the agreement [CADSSA 16.8(1)]. The collection agency receiving such notice shall provide the refund within 15 days [G Reg 28(6)].
5. Debtor May Sue
The debtor may sue for any payments [under s.16.6(2)] charged for debt settlement services made in contravention of this Act [CADSSA 16.10(1)].
If successful in such an action, the court shall order the full amount payable "unless in the circumstances it would be inequitable to do so", but also "may order exemplary or punitive damages or other relief that the court considers proper" [CADSSA 16.10(2)]. The first rule here (the 'equitable exception') is analogous to s.93(2) of the Consumer Protection Act, 2002 [see this link to the Isthatlegal.ca Consumer Protection (Ontario) Guide, Ch.7, s,3(d): Court May Reverse 'Inequitable' Aspects of Rescission ].
These right to sue provisions are near-laughable, given the small amounts at stake, the lack of financial wherewithal of the debtors, and the obscurity of the law. The courts don't even assert this law firmly in the CPA context, where it is much more frequent.
6. Records
Collection agencies shall keep the following records respecting all DSS agreements [G Reg 30(1)]:- a copy of the agreement;
- any receipts issued and disbursements made by the collection agency on behalf of the debtor;
- copies of all correspondence relating to the debt settlement services provided by the collection agency, including letters, e-mails and faxes to or from the debtor, any guarantor of the debtor’s debt, the debtor’s representative or the debtor’s creditors;
- records relating to any negotiation of debt repayments to creditors by the collection agency;
- any other records created or used while dealing with the debtor, the debtor’s representative or the debtor’s creditors.
Collection agencies shall also maintain on their premises "copies of all published advertisements and the records needed to support claims or statements made in the advertisements" [G Reg 30(2)].
Collection agencies shall maintain the above records [G Reg 30(1,2)] "for six years after the last payment made in connection with the debt settlement services agreement, or the date of the last advertisement, as the case may be" [Reg 30(3)], and shall provide the Registrar with copies upon their request within the time specified [G Reg 30(4)].
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