In Canada, each province has its own laws, rules and regulations around debt collection.
If you are receiving collection calls, it’s essential to understand your rights when dealing with a collection agency. In this guide to debt collection laws in Ontario, we explain the rules a debt collector must follow when contacting you, and when you may be better off not paying a debt collector.
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How debt collection laws work in Ontario
If you are unable to pay back a debt, the company you owe money to may send the outstanding debt to a collection agency. A collection agency is a company that creditors hire to recover debts that are past due. Debt collection agencies and debt buyers also purchase debts that are in arrears, so they may be calling you on their behalf rather than for your original creditor.
In Ontario, collection agencies must register and follow the rules set out by the Ontario Collection and Debt Settlement Services Act. Only third-party agencies are subject to these regulations, not your original creditor’s internal collection department. For example, your local plumber can call to collect without being registered. Similarly, if a company purchases an old debt, and calls you because they now own that debt, they also do not need to be registered.
Collection agencies earn a fee paid by your creditor for their collection service, usually a percentage of the amount collected. The objective of a debt collection agency is to collect as much as possible because the more money they receive from you, the more they earn.
Any type of debt can be assigned to a collection agency, including a bank loan, car loan, credit card debt, cell phone bill, utility bill, small business accounts payable, even a judgement debt under a lawsuit.
If you don’t pay off what you owe, collection agencies can become aggressive when it comes to getting back the money. If you don’t pay them, a collection agency can sue you or impose a wage garnishment to pay off the debt.
There are strict laws in Ontario that regulate what a debt collection agency can and cannot do, all designed to control the procedures a debt collector can follow when contacting you or anyone you know.
Collection agents in Ontario can’t just start calling you. Before they call, they are required to send you a letter by snail mail or email which must contain the following information:
- The original creditor who held the debt
- How much you owe
- The type of credit (for example, credit card debt or car loan)
- The amount of debt on the date it was first due, and, if different, the current amount owing
- The name of the debt collection agency, including their contact information
- Confirmation that the collection agency is registered in Ontario
- A statement that the collection agency will provide a detailed breakdown of the current amount owing if requested
- A consumer disclosure statement providing information about your rights and how to file a complaint if you feel the collection agency has broken the law.
There is then a 6-day waiting period before they can call to collect the debt that you owe.
If you do receive a letter or email, we suggest debtors do not rush to contact the collection agency. During the 6-day waiting period, the collection agency is not actively doing anything on the account. This period gives you time to collect your thoughts and determine what options you may have.
If you have not received the written notice, the collection agency or collector must resend the notice to you at the address you provide and no demand for payment or another attempt to collect payment of the debt can be made until the sixth day after the day the notice is resent.
If a collection agency calls you and you have not received a letter they are only permitted to confirm your identity, advise you that they will send details of the debt to you and advise you that they will contact you again 6 days after they have mailed the letter to you. They are prohibited from discussing the debtor demanding payment until they have sent the letter and waited the 6 days unless the consumer invites or authorizes the agency to discuss the debt.
What can collection agents do and not do
Calls from debt collectors can leave you feeling stressed. That’s normal. Ontario debt collection regulations ensure that debt collector tactics do not cross the line into harassment and intimidation.
Under the Collection and Debt Settlement Act an agency cannot threaten legal action in communication with a debtor without the prior written authorization of the original creditor.
Some collection agencies send out “Draft Statement of Claims” that appear they have been issued by the court. This is against Ontario regulations. In almost all cases there is print somewhere on the document that stated “Draft”. We recommend you photocopy this letter and send it to the Ontario regulator at Consumer Protection Ontario and as well to the Law Society under complaints.
Debt collectors can sue you but applying to the court is costly which is why collection agencies rarely commence legal action. If you do not have a source of verifiable income or a home, they will most likely not pursue you through the courts. Also, government cheques such as Ontario Disability Support Program, Ontario Works or Canada Pension cannot be seized by a collection agency.
How often can debt collectors call you?
Debt collectors in Ontario are permitted to contact you between the hours of 7 am and 9 pm Monday to Saturday and 1 pm and 5 pm on Sunday and cannot contact you on statutory holidays.
After you speak to an agent for the first time, debt collectors can only contact you a maximum of three times in seven days without your express consent for more frequent contact. However, the debt collector must speak to you on the phone, leave a voicemail or send an email for it to count as proper contact. If you don’t answer and they do not leave a message, they may use a robo-dialer to call your number over and over again.
While they can be persistent, any discussion must be civil. They are not allowed to threaten you or use unreasonable or offensive language.
Cell phone communication
It is not uncommon today for someone to only use a cell phone for communication. Unfortunately, this can come with data and calling charges. If you notify a collection agency or collector that a particular method of communication causes you to incur costs, or if the collection agency or collector otherwise becomes aware of that fact, the collection agency or collector cannot continue to contact or attempt to contact you using that method of communication. You are under no obligation to prove that a cost is incurred to stop communication this way. The collection agency is required to reimburse you for any costs if you request repayment and provide proof.
Who else can they contact?
A debt collector can lawfully contact your friends, family, spouse or neighbour in Ontario, but only to find your contact details or if you have given permission in writing or the person has guaranteed payment of your debt. It is very common for creditors and debt collectors to demand payment from cosigners.
A debt collector can contact your employer without your permission to confirm your employment status. They can also call to inquire about the status of a court order for a wage garnishment, which requires automatic deductions from your salary.
How much can they ask you to pay?
You are only required to pay up to the actual amount of debt owing. Debt collection agencies in Ontario are not allowed to charge you any extra fees. There is an exception for Provincial Offences fines owing to municipalities. Collection agencies can add a fee where the municipality permits.
If you ask, the debt collector must also provide a breakdown of the current amount owing. For example, you can ask how much the original loan amount was, how much of the balance is interest, the interest rate, fees, penalties and costs. This is essential information to ask if you are thinking about offering a debt settlement amount. I’ll discuss more on offering less than you owe to a debt collector later in this article.
Debt collector vs debt settlement consultant
A 2015 change to Ontario’s debt collection laws required debt settlement companies to register as debt collectors. While they must register under the same Act, debt settlement companies are not debt collectors. A debt collector works on behalf of the creditor. A for-profit debt settlement company helps you negotiate a debt settlement agreement with a creditor to pay less than you owe.
Debt settlement companies are allowed to charge you a maximum of 15% of each payment plus a one-time fee of $50 per account for the services they provide to you. While debt settlement agencies can no longer charge debtors a hefty up-front fee like they used to, there’s still no guarantee that the average indebted consumer will be safe from predatory debt settlement practices.
To clarify, a Licensed Insolvency Trustee is not required to register provincially as a debt collector. LITs are licensed and registered through the federal government. We cannot charge any additional fees for services other than the prescribed fees permitted under the Bankruptcy & Insolvency Act. These fees are taken out of your consumer proposal or bankruptcy payments, before payments to creditors.
The time limit for debt collection in Ontario
In Ontario, the statute of limitations for standard debts, like bank loans and credit cards, is two years. After this time, a collection agency can no longer sue you or pursue legal action to collect on a past-due debt. Be careful not to acknowledge the debt when talking to a debt collector as this can start the two-year clock over again. The courts have been clear on this issue. The 2-year limitation is restricted to the date of last payment.
Dodging your debt might seem like a great plan, but even if two years have passed, it does not mean the debt will vanish. You still owe the money, and debt collectors can continue to contact you for payment even if they can no longer sue.
Running away from your debts will also negatively affect your credit report and credit score for much longer. Late payments, defaults and accounts in collection remain on your credit report for six to seven years (depending on the credit bureau) from the date of your last payment.
The two-year limitation period applies to unsecured debts. Secured creditors (like mortgage and car loan lenders) can enforce their security rights at any time, and the prescribed limitation period in the Income Tax Act in Canada for Canada Revenue collections is ten years.
Dealing with a collection agency
Debt collectors can be intimidating, and repeatedly receiving calls from a collection agent can almost feel like harassment. Unfortunately, you can’t just shut your eyes and wish the calls away.
If the debt is yours, before you talk with the debt collector, you have some decisions to make:
- Can you afford to pay back your debt in full?
- Can you afford a partial payment or settlement?
- Should you pay the debt collector or talk to a credit counsellor or Licensed Insolvency Trustee first?
If you are in a financial position to make payments on the debt we suggest that you attempt to negotiate a payment arrangement with the collection agency. You can offer to pay the amount at once or in installments. Whatever you do:
- Only offer what you can afford
- Get any agreement in writing
- Never send cash or gift cards as payment
If you negotiate a payment plan with a collection agency you should, as part of the agreement, have them in writing acknowledge that if payments are made on time they will remove the collection item on your credit report once the debt has been paid in full.
If you can’t afford to repay the debt, tell that to the collection agent and explain why, but don’t be bullied into making a partial payment that doesn’t fully solve your debt problems.
Reasons to not pay a collection agency
It’s only a good idea to pay a collection agency if it’s in your own best interest. If your debt is small and affordable, and you just want to clean up your credit score or stop the calls, then pay it. However, there are reasons not to pay a collection agency.
The credit bureau purge policy – As mentioned, collections accounts, whether paid or unpaid, remain on your credit report for six years from the last payment. Once this time is up, a debt will be automatically purged and will no longer appear on your credit report for future lenders to see.
Making a payment to a collection agency can start this clock over. If you are close to the end of the purge window and it’s a small debt that you are unlikely to be sued for, you might be better off ignoring the calls and not paying the collection agency.
We recommend you get a free copy of your credit report to check your date of last payment. Some less reputable collection agencies and debt purchases may knowingly report an account in collection on a credit report well beyond the 6-year purge period. They do so to force the consumer to contact the credit bureau to have the item removed or to offer a settlement.
If it’s an old debt – This is similar to the purge policy. If a debt is past the limitation period where a collection agent can no longer sue you, and you can live with the hit on your credit, you can ignore the calls and you can choose not to pay and move on.
If you have ‘too much’ debt – If the debt is too large or multiple collections agents are calling you because you have too much debt, it’s better to make a plan for all your debts and not try to deal separately with several different collection agents. This is where a consumer proposal or personal bankruptcy might work for you and stop the collection calls altogether.
Options for settling with a collection agency
Sometimes you can negotiate a deal with a debt collector yourself.
It’s very important to do this carefully and make sure that when you settle with a collection agency, your settlement has legal validity. You need to feel confident enough to approach your debt collectors and be aware of your rights.
If you believe in your persuasion skills, your creditors may agree to settle for pennies on the dollar. If your debt is old and in collections, you stand a better chance at negotiating a good settlement amount.
A successful negotiation with a collection agency involves many steps:
- Determine how much you can afford to repay
- Rehearse your ‘story’
- Be aware of your rights and the legality of your settlement
- Stay composed and do not be afraid to hang up if things get nasty
- Write everything down as you go so you remember what both sides said
- Get the final agreement sent to you in writing
- Make sure you can 100% keep up with your repayments, or else all your hard work could be undone
While it is feasible to negotiate and settle with your creditors, debt collectors or a collection agency on your own, this doesn’t mean it’s the best option.
Alternatives in Ontario to dealing with collection agencies
You can decide not to pay your debt at all, but for a lot of people, that’s too stressful. The lender or creditor may decide to pursue legal options, like a wage garnishment, or you may be tired of juggling one debt payment for another.
You want to get out of debt and learn how to manage your debts and get your finances back on track. If you are in debt but want to avoid dealing with a collection agency, you can:
- Arrange a Debt Management Plan – With the help of a not-for-profit credit counselling service or agency, you can arrange a DMP. This means that if you have the money, and you want to clear your debt up, you offer to pay the debt in full over a period of time (usually years) by way of monthly payments. A credit counselling agency will charge you a 10% fee on top of the amount owing.
- File for a Consumer Proposal – If you don’t have the funds in full, there are still alternatives to a partial payment with a collection agency. A consumer proposal is a legally binding debt settlement agreement to repay your creditors a percentage of what you owe in exchange for full debt forgiveness. A Licensed Insolvency Trustee helps you negotiate a settlement offer and their fees come out of the amount paid to creditors. You pay only the agreed settlement amount.
- File for Personal Bankruptcy – Sometimes, declaring bankruptcy is the best way to deal with your debt and get debt relief. Personal bankruptcy is a legal practice designed to help an honest but unfortunate debtor who cannot afford to repay their debts. Debtors assign their rights to non-exempt assets for the benefit of their creditors in exchange for which they are released from unsecured debts. At the end of the bankruptcy, your debts are legally discharged, meaning you are no longer required to pay them back, and you can have a ‘fresh start’.
At Hoyes, Michalos and Associates, we are proud to be a team of understanding experts, trained in all of the different Ontario debt relief options.
Meet with a licensed insolvency trustee who will ask you all the important questions about your income, budget and debts to help you plan for the best outcome.
If you want a team of professionals to deal with your debts for you, who understand all there is to know about Ontario debt collection laws and how to stop debt collection calls for good, then all you need to do is give us a call or send us an email, and we can get started.